Devina Mehra on one lesson that stock investors learnt in Samvat 2079

A Rs 100 investment in the stock market in 1980 turned an investor money into a solid Rs 700 at the end of 10 years. But an investment of Rs 100 in 2010 barely doubled to Rs 210 in 10 years. This is in a period when even a Rs 100 investment in fixed deposits would have turned Rs 100 into Rs 200.

The biggest lesson for investors in Samvat 2079, says Devina Mehra, Founder, Chairperson and Managing Director at First Global group, is that the market returns are not linear and, thus, one should not have a short-term view on the market. In an interview to Siddharth Zarabi, Managing Editor, Business Today TV, Mehra said: "First thing is, anyone looking to invest in the stock market should not have a one year view, whether backward or forward."

Mehra noted that it is generally believed that equity market compounds at a growth rate of 15-16 per cent; this is historically the long-term compounding that one saw since the BSE Sensex's inception. But the market stays volatile in theory, she said.

"Many investors new to the market forget that the aberration from month to month, year to year performance or even decade to decade market performance can vary dramatic," she said.

In the case of 2010-2020, "that whole decade, equity markets gave a very low returns and that is why a room has been created for them to do reasonably well. Even after the run-up since the Covid lows, the market is not even close to the trendline of 15-16 annual returns," Mehra said.

One takeaway for investors, therefore, is that the risk of any crash in the market is not very high, especially in the case of largecaps. Smallcaps though are another story, Mehra said.

"This year has been a year of smallcaps. One must caution new investors that it is a segment that has in the last 15 years seen one fall of nearly 80 per cent and another drop of two-third. Smallcaps that fell never came back to pre-fall levels because the index itself changes. In smallcap when a fall comes, a lot of companies just disappear. So that part, I would be cautions on. I would be much more positive on largecap part," she said.

Mehra advised investors to look at the long-term data. "Don’t fall for someone saying that he has delivered 50 per cent returns in micro caps in the last two years. It is because if stocks fall two-thirds, it can triple but can still be zero."

 

 

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