The decade of 2013-22 belonged to US equities (S&P500) followed by Indian equities (Nifty50) and Developed Markets (MSCI DM). US equities (S&P500) have given staggering returns of 15% CAGR for a period of the last 10 years, which is much higher when compared with the Nifty 50 and MSCI DM (Developed Markets) of 11.9% and 11.4%, respectively. These findings are from the report titled, The Alpha Strategist by Motilal Oswal Private Wealth.
This showcases that US equities returns have outperformed Indian Equities by nearly 310 basis points CAGR over the last 10 years. The compound annual growth rate (CAGR) is the average annual rate of growth over two time-period or two years.
The Alpha Strategist by Motilal Oswal Private Wealth highlighted that the global economies and financial markets are experiencing ‘Winds of Change’. This infers that their new economic fundamentals are getting predominant which will dramatically alter the growth trends witnessed over the last 10 years.
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Alpha Strategist report encapsulates the performance analogies of various asset classes during 2013-22 and provides an advisory on the ideal asset mix for wealth creation.
The outperformer of 2013-22, US Equities gave negative returns of 10.7% in 2022. This is a testament to winds of change where a series of events in CY22 are causing a change in trend, rather intensely.
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The conflict in Ukraine and subsequent sanctions on Russia led to major disruptions in global supply chains along with a surge in fuel & commodity prices, thereby proliferating inflation. In a combative bid, the US Fed, along with global central banks, has resorted to hiking interest rates at the fastest pace ever historically. Higher cost of capital has led to the de-rating of equity market valuations.
Ashish Shanker, MD & CEO, Motilal Oswal Private Wealth sums it up for the investors – “The last decade belonged to ‘Growth’ (Earnings Momentum & Quality). The ‘Value’ style, which typically includes cyclical sectors like Financials, Capital Goods, Power, and Real Estate, underperformed. There is a likelihood that some of these cyclical sectors could do much better going forward relative to the last decade. However, we recommend an equity portfolio needs to have a judicious mix of both investment styles – Growth & Value.”