Fit-for-All Investments:

The Stock Market is Data in Action

INDIA & INTERNATIONAL

In the stock market invest only the amount not required at least in the next five years. For short-term needs put money in liquid funds for tax efficiency/less taxes.

Let us see where different countries stand in terms of investing population in the world. As of on February 4, 2022, at 3%, merely a fraction of India’s population is invested into stock markets, lagging far behind the US (55%), UK (33%) and China (13%).

Percent of population investing in stock markets: India Vs Rest of the World (livemint.com)

-As of January 2023, USA stock market constituted 58.4% of the world markets, followed by Japan- 6.3, UK- 4.1, China- 3.7, France- 2.8, Canada- 2.7, Switzerland- 2.5, Australia- 2.2, Germany- 2.1, India- 1.8, Taiwan- 1.6 & South Korea- 1.3%.

The US holds a share of 44.74% in the global market capitalization, followed by China (9.12%), Japan (5.64%), Hong Kong (4.48%), India (3.61%), France (2.94%), UK (2.77%), Saudi Arabia (2.76%), Canada (2.54%) and Germany (2.17%). India is now the fifth most valued market in the world with a m-cap of $4.108 trillion, beating even France ($3.144 tn), UK ($2.956 tn), Canada ($2.716 tn) and Germany ($2.318 t) (source: The Economic Times Newspaper, Mumbai- November 30, 2023, page-9).

Indian market index BSE’s market capitalization reached of $4 trillion in first week of November 2023. The $4 trillion milestone has happened earlier for market cap than for GDP. The latter is expected to hit that number in the coming fiscal year. India is No. 5 in the global market cap rankings, the same position as GDP.

Indian bourses are, in fact, within striking distance of the Hong Kong Stock Exchange, which is $4.7 trillion. A pre-2024 election bull run, now widely predicted, can get India there. The top three, US, China and Japan, are at considerable higher levels. Though there is no direct correlation, as India’s GDP rises, market cap will also rise due to increased equity investments/private sector capex by promoters (source: The Economic Times Newspaper, Mumbai-December 7, 2023, Editorial “A $4 Trillioning Plus We Go”, page- 14).

Below is the INR returns for various geographies for last 10 calendar years. Top performing markets each calendar year have been different, and it is thus prudent for an investor to diversify holdings across multiple markets.

In the year 2022, Global Indexes were down by 10-28% almost all over the world, but Indian equity market outperformed and were up by 5.5-5.8%. Also, India is now the fifth most valued market in the world with a m-cap of $4.108 trillion, beating even France ($3.144 tn), UK ($2.956 tn), Canada ($2.716 tn) and Germany ($2.318 t) (source: The Economic Times Newspaper, Mumbai- November 30, 2023, page-9).

In the past China was central to the emerging markets theme – but that may start to change as investors and corporates look beyond China. India is one country attracting a lot more interest. Also, now foreign companies are looking to diversify their investments away from China after becoming aware of the political risks (source: Simply Wall St., January 30, 2023).

After negotiating and hesitating for years, Apple finally entered India- geopolitical considerations persuaded it, along with other global giants to diversify production away from China to alternatives like India. The same logic is driving Tesla too (Source: Page-20, Sunday Times of India, Mumbai- May 28, 2023).

So, investing in Indian stock market becomes very important and is being given in detail. But also diversify and take advantage of the low valuations of international markets and invest in international index funds/companies as given in the text.

Before we start actual investing, let us see how stock markets world over have performed. To compare multibaggar returns given by various world stock market indices with nominal returns of Bank FD’s/Gold, see following facts/scenarios (Source-modified: Financial Literacy Awareness Webinar on December 25, 2022/January 08, 2023, etc. by Varun Malhotra, IIM Ahmedabad-India/CFA Institute-USA):

– Indian stock market index the Sensex has grown from 100 points (1979) to 60,000 (2022) at compounded annual gain of 16% (18% if dividend included) i.e., 600 times (with volatility) in 43 years (See Max chart below):

sensex chart – Google Search (See Max chart)

Now, even if we consider bank Fixed Deposit (FD) annual interest rate of 12%, minus 30% tax, effective return is only 9%. Rule of 72 says, 72 divided by interest rate (9%) give number of years required to double the money i.e., 72/9 = 8 years, (43 years/8= 5.4 times). So, Rs 100 in bank grew to only Rs 3200 (32 times only; 100 to 200/400/800/1600/3200) during the same period of 43 years (1979-2022). Also, in 41 years (1981-2022), the price of gold has gone up only 30.6 times, from Rs 1800 for 10 gm to Rs 55,000.

-Nifty 50 Index (see Max chart) rose from 890 (January’1999) points in 1999 to 18,500 in (December’ 2022) about 20 times in 23 years.

nifty chart – Google Search (See Max chart)

-It is astonishing to know that legendary investor Warren Buffett (net worth $130 billion USD + 37 billion given in charity) has generated his enormous wealth in the stock market from his company Berkshire Hathaway’s business/investments (4.3 million or 43 lacs percentage returns from 1964 to 2024) with a compounded annual gain of just 19.8% returns (24% if dividends included) for a long-period. So, you require just 20% returns in dollar currency in long-term to be rich like him, your idol becomes your rival (Source-modified: Financial Literacy Awareness Webinar on December 25, 2022/January 08, 2023, etc. by Varun Malhotra, IIM Ahmedabad-India/CFA Institute-USA).

The lion’s share of the 93-year-old’s wealth was built after four decades of investing, 99% of his $130 billion empire was made after his 50th. So, for him 40-50-60 years define ‘long-term (Source: Mutual Fund Insight Magazine- India, December 2023, Page-16). Warren Buffet started investing with just $114.75 in 1942. Later, in his first partnership, he invested only $1001. By the time he was 30, he had a net worth of $1 million.

See the following Fit-for-All Investments:

– Child (Age- 0 years): Invest once (or may be through SIP) Rs 50,000/- in Nifty 50 Index, compounded at 18% (includes dividends 3%) grows to Rs 102.78 crores (but actually showing 226.21 crores, see calculation chart below) at 61 years age (value only Rs 3.1 crores in today’s terms, after discounting 6% inflation/he will not depend on government subsidy or his children). Write in big letters at back of birthday invitation cards “In gift we prefer only cash”. Now better invest in newly launched Nifty 500/BSE 500 Index Funds (HDFC S&P BSE 500 Index Fund) for much higher returns.

Varun says when he told his partner this is how 100 crores are made, she readily agreed to marry him.

-See returns in HDFC Compound Interest Calculator given below:

Compound Interest Calculator – Calculate Compound Interest Online (hdfclife.com)

– Age 20 years: Invest once (or may be through SIP) Rs 50,000/- (from savings/part time job- try to not take from parents) in Nifty 50 Fund, at 60 years age becomes Rs 3.75 crores @ CAGR 18% (includes dividend 3%)- also see actual returns in the compound interest calculator given above. So, secure your retirement now itself. Now better invest in newly launched Nifty 500/BSE 500 Index Funds (HDFC S&P BSE 500 Index Fund) for much higher returns.

– Age 60 years: If initial corpus Rs 1 crore, put estimated 12 years expenses say Rs 40 lacs in Liquid Funds (1-3 years duration) for tax efficiency/much less taxes and may choose Equity Savings Funds (3-5 years duration). Balance Rs 60 lacs invested (through SIP for 3 years) in Nifty 50 Fund @ CAGR 18% (includes dividend 3%), after 12 years becomes Rs 3 crores- also see actual returns in the compound interest calculator given above (12 years period is taken to cover volatility of the stock market).  Now better invest in newly launched Nifty 500/BSE 500 Index Funds (HDFC S&P BSE 500 Index Fund) for much higher returns.              

Repeat the process at Age 72 years (Rs 80 lacs for 12 years expenses, invest balance Rs 2.2 crores in Nifty 50) and so on.

Now broad market Indices Nifty 500/BSE 500 (constituting Large/Mid/Small Cap companies) have been launched in India that will give higher returns than only Large Cap companies-based Sensex and Nifty 50 Indexes. But they are more volatile due to presence of mid and small cap companies. They are equivalent to US S&P 500 Index.

Index Funds ((Standard/System/Merit Funds) based on Nasdaq 100 (World), S&P 500 (USA), MSCI Inc (World) & Nifty 500/ BSE 500 (UTI Nifty 500 Value 50 Index Fund, India) Indexes are all-time best investments in the world and have been given under Equity Funds. Nasdaq 100 Index shows highest “Max” returns (3257% since March 17, 1995) followed by BSE 500 (2639% since February 5, 1999), S&P 500 (2587% since September 2, 1983), Nifty 50 (2068% since January1, 1999), MSCI Inc (2007% since December’2007).

-See Comparison of Max etc. returns Chart of above important World Stock Market Indices (Nasdaq 100/BSE 500/ S&P 500/Nifty 50/MSCI Inc) representing the major Index Funds below:

NDX 15,289.74 (▼1.11%) Nasdaq-100 | Google Finance

MSCI World Index- Morgan Stanley Capital International, is a benchmark that tracks the performance of equity markets across the developed world.

By now it must have become clear that a market Index can never become zero. Main feature is its auto-correction/update process by which companies are included/excluded on the basis of performance etc. It is always volatile in the short-term but rise/give multibaggar returns in the long-term and can be passed on generation to generation- Index is Forever- “Invest in Index & Relax”. Money in the bank can be lost if the bank goes bankrupt but never in an index. Detail description of an Index Funds is given under “Equity Funds- Conclusions”.

There are two types of stock market investments:

A) MUTUAL/INDEX FUNDS & PORTFOLIO MANAGEMENT SERVICES (PMS) B) EQUITY/STOCKS

(In India for Equity/Mutual Funds, NPS, SGB Investing, IPO applications etc., may open online demat account with icicidirect, as unlike others it has wide office network/reputed group, and very good user-friendly features. PAN card/Aadhaar card/Bank cheque required, can link with any bank account. NRI’s can also open account via online KYC).