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FACT SHEET
EQUITY INDEX@ GOVERNMENT BOND INDEX@
Dow FTSE Dax Nikkei US UK Germany Japan
31/1/1990
Nominal 2591 2337 1823 37189 123 149 126 119
Real* 4408 4260 n/a 40474 209 272 n/a 129 $30.3 billion from US equity funds and
31/1/1995 $11.6 billion from European stock
Nominal 4244 3303 2235 20591 182 252 209 252 funds. All this has to be a cause for
Real 6117 4926 2764 20397 263 376 259 249 concern in asset allocation decisions
in G20 countries, including India.
31/1/2000 Turning to the performance of eq-
Nominal 13337 7641 8333 23819 256 425 223 319 uity markets in India, real stock mar-
Real 17125 9987 9669 23214 329 555 258 311 ket returns were positive in the last
31/1/2005 20 years. For instance, the real return
on the Nifty — assuming dividends were
Nominal 14118 6530 5726 15326 370 666 414 363 reinvested and the dividend yield was
Real 16042 7530 6199 15219 420 768 449 361 1.5 per cent per annum — was about 42
31/1/2010 per cent in the nine-year period from
Nominal 14959 7710 8334 15153 472 728 542 447 September 1991 to September 2000.
Similarly, the real return from September
Real 14959 7710 8334 15153 472 728 542 447 2000 to September 2010 was 129 per
@ Dividends are assumed to be reinvested and the average dividend yield on stocks is assumed to be 2% per annum.
Coupon payments on bonds are also assumed to be reinvested. cent. The Indian rupee 91-day Treasury
* "Real" prices are as of 2010. Source for underlying numbers: Barclays Capital bill yield was 6.14 per cent as of Sep-
tember 15, 2010. Assuming a Treasury
bill yield of this level for the last 10 years,
the equity risk premium in India from
STOCKS VERSUS
2000-2010 was about 4 per cent.
The standard advice to retail in-
vestors is to hold their portfolio of
stocks for at least five-ten years and
not try to be day traders. For older in-
BONDS
vestors, the preference could be to hold
more bank deposits choosing regular
interest income to future growth. In
practice, in 2008-09, Indian invest-
ments out of household savings in
financial assets were as follows. About
8.2 per cent of GDP was invested in
A balanced portfolio of stocks can give higher return compared deposits as compared to 0.4 per cent
in shares and debentures and 2.8 per
to short-term, risk-free benchmarks, says JAIMINI BHAGWATI cent in insurance funds. The 0.4 per
cent of GDP investment in shares and
sset managers worry about portfolio of stocks as compared to short- and Mike Staunton (referred to in the debentures was after the global down-