Please find below the 5 charts that tell interesting stories on Markets and Investing.

 

1) Indian Equity Market Correction:

 

Indian equity markets have been in a corrective phase since September 27, 2024, marking the fifth consecutive month of negative returns.

 

Such an extended correction has not occurred in the last 25 years, with the previous instance dating back to 2001.

 

Historically, prolonged corrections are often followed by strong rebounds in equity markets. We remain hopeful for a similar recovery this time.

 

Over the past five months, the broad equity market (Nifty 500) has declined by -15.8%. During this period:

 

Nifty 50 Index: Fell by -13.25%

Midcap 150 Index: Dropped by -17.03%

Small Cap 250 Index: Decreased by -21.43%

Microcap 250 Index: Fell by -21.60%

 

 

2) Global Equity Market Performance - Last 10 Years:

 

Over the past decade, Indian Large Cap Equity has given 78% return in US Dollar. Whereas Nasdaq has given 308% and US S&P 500 has given 192%.

 

Given this performance, its clear that having a good allocation in US equities can significantly benefit investors.

 

Emerging markets have only delivered a 13% absolute return in the past decade and China has given 2% return. EM investors, excluding India, have not seen significant gains in equity markets over the last 10 years.

 

One major reason for this pattern has been the strength of the US Dollar, which has negatively impacted returns in emerging markets.

 

If Mr. Trump messes up the US economy in the coming quarters then emerging markets may see a good  recovery due to their attractive equity valuation and a potential devaluation of US Dollar.

 

 

3) Indian Equity Valuation and Earnings Growth:

 

In FY 2025-26, Nifty is projected to deliver an earnings growth of 16%, with an expected growth rate of 15% for FY 2026-27.

 

During the same period, Mid Cap earnings are anticipated to grow by 27% and 24%, while Small Cap earnings are expected to increase by 24% and 20%, respectively.

 

This indicates that the earnings growth in Mid and Small Cap stocks will likely surpass that of Large Cap stocks.

 

Currently, Mid Cap and Small Cap stocks are trading at higher price-to-earnings (PE) ratios, primarily due to their higher earnings growth potential and strong domestic investment flows into this segment.

 

In terms of valuation, Large Cap stocks are fairly valued, whereas Mid Cap and Small Cap stocks are overvalued by approximately 10% to 30%.

 

 

4) Indian Equity vs US Equity - Big Deviation:

 

Historically, Indian equity and US equity markets have shown a high correlation.

 

However, since September 2024, the Indian Nifty 500 Index has deviated significantly from the US S&P 500, marking the largest divergence since 2009.

 

The primary reason for this deviation is the tariff discussions initiated by the US President Trump, which have unsettled emerging markets. As a result, we are witnessing this unusual divergence.

 

In the coming months, we may see either the Nifty 500 in India bouncing back or the US market correcting.

 

There is a high probability that Indian equity markets will recover, while the US market may experience a slowdown.

 

 

5) PMS vs Mutual Funds - Which is better?

 

Mutual Funds and Portfolio Management Services (PMS) offer distinct pathways for equity investment.

 

PMS requires a minimum investment of Rs. 50 lakhs and tends to have higher fees.

 

Recent data reveals that PMS returns have consistently underperformed those of Mutual Funds across various time periods.

 

A significant factor contributing to this underperformance is the higher expense fees associated with PMS.

 

In essence, higher fees do not necessarily translate to better returns. Mutual Funds, with their lower costs and competitive performance, often provide a more attractive investment option.

 

Also, its important to note that not all PMS are underperformers. There are some PMS that have delivered good returns. Therefore, investors need to be diligent and conduct thorough research before investing in PMS.

 

 

 

Investor Guidance: At current levels, it is prudent to invest only that money in equity which is not required for next 5-7 years. 

 

Disclaimer:  The perspectives provided reflect our expectations of the economy, market, and investments, which may or may not materialize. Investors are encouraged to conduct their own due diligence before investing.

 

Read more similar articles in our blog - https://alphacapital.in/blog/

 

Best Regards

 

Dr. Mukesh Jindal CFA, CFP, CAIA, Ph.D.

Alpha Research