India’s most underrated investment asset
India's most underrated investment asset
Some time ago, someone asked me what I considered the most underrated investment asset in India. It's the sort of question that could invite a dozen different answers, depending on your perspective. Depending on your perspective, you argue for practically anything. However, suppose one steps back and takes a wide-angle view of the entire savings landscape in India. In that case, there's only one possible answer: equity, and by extension, equity-backed mutual funds.
This might sound counterintuitive, even illogical. After all, equity markets generate considerable noise in investment circles. The pink papers and the business channels are filled with stock analyses, market predictions, and trading strategies. Social media is full of tips, recommendations, and market commentary, good or bad. All in all, the equity markets seem anything but underrated or ignored.
But here's the point that readers of this column probably don’t notice: this noise exists primarily within investment circles. You and I are immersed in this noise, but most Indians never hear it. When you consider the broader savings population of India, equity takes a decidedly secondary position to guaranteed fixed-income options such as bank fixed deposits, PPF, and various other government schemes. The average Indian saver still views equity with suspicion, treating it as something akin to gambling rather than a legitimate wealth-building tool.
To understand why equity is truly underrated, we need to consider what 'underrated' actually means. It's not simply about being unpopular or receiving little attention. Rather, it's about the gap between perceived value and the real value that an asset can deliver over time. By this measure, equity stands unmatched.
The fundamental reason lies in equity's unique ability to keep pace with economic development and inflation. When you buy shares in a company, you're purchasing a stake in a business that can grow its revenues, expand its operations, and increase its profitability over time. As the Indian economy develops and companies adapt to changing consumer needs and technological advances, equity investors participate in this growth.
Consider this: over the past two decades, India's nominal GDP has grown at an annual rate of approximately 10-12 per cent. During the same period, well-managed equity portfolios have delivered returns that are comparable to or exceed those of the benchmark. This isn't coincidental – it reflects the fundamental connection between economic growth and corporate profits, and by extension, equity prices.
Contrast this with the traditional favourites of Indian savers. A bank fixed deposit might offer the comfort of guaranteed returns, but at current rates of around 6-7 per cent annually, it barely keeps pace with inflation. After accounting for taxes, real returns are generally negative. Government schemes like PPF offer tax benefits and reasonable returns, but their lock-in periods and relatively modest returns make them unsuitable as primary wealth-building tools.
The tragedy is that this preference for guaranteed but modest returns often stems from a misunderstanding of risk. Many savers equate the daily volatility of equity markets with risk, failing to recognise that the real danger lies in not growing their wealth fast enough to maintain purchasing power over time. This misunderstanding is compounded by how equity investing is often presented in the media. The focus on daily market movements, trading strategies, and quick profits creates an impression that equity investing is all about timing and speculation. The message that equity is a long-term wealth-building tool gets lost in the noise.
While investment professionals and market commentators obsess over marginal differences between various equity strategies or debate whether the market is expensive or cheap, the vast majority of Indian savers remain entirely oblivious to equity's wealth-building potential. They're missing out on participating in India's growth story at precisely the time when the country is experiencing its most dynamic economic expansion.
This isn't to suggest that everyone should abandon fixed deposits and rush into equity markets. Every portfolio needs balance, and guaranteed returns have their place, particularly for short-term goals and emergency funds. However, for long-term wealth building, equity's track record is unmatched. That’s my point exactly – the real measure of equity being underrated isn't in its returns or potential – it's in the number of Indians who could benefit from it but remain unaware of its true utility in building lasting wealth.
Thank you for being a Value Research Insider. I hope you found this note useful and interesting. What did you think of today’s note? Let me know.
And if you need some extra help to improve your investments, you can check out Fund Advisor and Stock Advisor. Many readers find these to be valuable companions on their investing journey.
If you know anyone who would enjoy it, please forward this email. They can sign up for free here.
Some time ago, someone asked me what I considered the most underrated investment asset in India. It's the sort of question that could invite a dozen different answers, depending on your perspective. Depending on your perspective, you argue for practically anything. However, suppose one steps back and takes a wide-angle view of the entire savings landscape in India. In that case, there's only one possible answer: equity, and by extension, equity-backed mutual funds.
This might sound counterintuitive, even illogical. After all, equity markets generate considerable noise in investment circles. The pink papers and the business channels are filled with stock analyses, market predictions, and trading strategies. Social media is full of tips, recommendations, and market commentary, good or bad. All in all, the equity markets seem anything but underrated or ignored.
But here's the point that readers of this column probably don’t notice: this noise exists primarily within investment circles. You and I are immersed in this noise, but most Indians never hear it. When you consider the broader savings population of India, equity takes a decidedly secondary position to guaranteed fixed-income options such as bank fixed deposits, PPF, and various other government schemes. The average Indian saver still views equity with suspicion, treating it as something akin to gambling rather than a legitimate wealth-building tool.
To understand why equity is truly underrated, we need to consider what 'underrated' actually means. It's not simply about being unpopular or receiving little attention. Rather, it's about the gap between perceived value and the real value that an asset can deliver over time. By this measure, equity stands unmatched.
The fundamental reason lies in equity's unique ability to keep pace with economic development and inflation. When you buy shares in a company, you're purchasing a stake in a business that can grow its revenues, expand its operations, and increase its profitability over time. As the Indian economy develops and companies adapt to changing consumer needs and technological advances, equity investors participate in this growth.
Consider this: over the past two decades, India's nominal GDP has grown at an annual rate of approximately 10-12 per cent. During the same period, well-managed equity portfolios have delivered returns that are comparable to or exceed those of the benchmark. This isn't coincidental – it reflects the fundamental connection between economic growth and corporate profits, and by extension, equity prices.
Contrast this with the traditional favourites of Indian savers. A bank fixed deposit might offer the comfort of guaranteed returns, but at current rates of around 6-7 per cent annually, it barely keeps pace with inflation. After accounting for taxes, real returns are generally negative. Government schemes like PPF offer tax benefits and reasonable returns, but their lock-in periods and relatively modest returns make them unsuitable as primary wealth-building tools.
The tragedy is that this preference for guaranteed but modest returns often stems from a misunderstanding of risk. Many savers equate the daily volatility of equity markets with risk, failing to recognise that the real danger lies in not growing their wealth fast enough to maintain purchasing power over time. This misunderstanding is compounded by how equity investing is often presented in the media. The focus on daily market movements, trading strategies, and quick profits creates an impression that equity investing is all about timing and speculation. The message that equity is a long-term wealth-building tool gets lost in the noise.
While investment professionals and market commentators obsess over marginal differences between various equity strategies or debate whether the market is expensive or cheap, the vast majority of Indian savers remain entirely oblivious to equity's wealth-building potential. They're missing out on participating in India's growth story at precisely the time when the country is experiencing its most dynamic economic expansion.
This isn't to suggest that everyone should abandon fixed deposits and rush into equity markets. Every portfolio needs balance, and guaranteed returns have their place, particularly for short-term goals and emergency funds. However, for long-term wealth building, equity's track record is unmatched. That’s my point exactly – the real measure of equity being underrated isn't in its returns or potential – it's in the number of Indians who could benefit from it but remain unaware of its true utility in building lasting wealth.
Thank you for being a Value Research Insider. I hope you found this note useful and interesting. What did you think of today’s note? Let me know.
And if you need some extra help to improve your investments, you can check out Fund Advisor and Stock Advisor. Many readers find these to be valuable companions on their investing journey.
If you know anyone who would enjoy it, please forward this email. They can sign up for free here.
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