Please find below 5 charts that tell interesting stories on Markets and Investing.
1) New SEBI guidelines to benefit Small Cap, Mid Cap and Multi Cap
*Source- Ventura Securities
As per new SEBI Guidelines, Multicap Mutual Funds will have to compulsorily invest 25% each in Large Cap, Mid Cap and Small Cap by 31st January 2021.
As per the above chart, currently, Multicap Funds have investment of ~7% in Small Cap and ~17% in Mid Cap Fund. Because of this new guideline, ~Rs. 39,000 Crores is expected to move into Mid Caps and Small Caps from Large Caps.
The whole amount may not move because some schemes will also change their category. But overall, its a good positive move for Mid Caps and Small Caps.
In 2018, a SEBI guideline on categorization had led to outflow from Mid Caps and Small Caps which had impacted their performance.
2) Earnings Yield for Equity in India:
*Source – ICICI Securities Research
The above chart shows the Earnings Yield (Earnings of company divided by share price) of companies across different market capitalization.
Presently, yield for Small Caps is 5.9% and for Mid Cap its 5.2%. This is better than the yield of Large Cap which is currently at 4.1%. The margin of safety is higher for Mid Caps and Small Caps.
Also, the current yield in equity is close to the bond yields, this will lead to money moving from bonds to equity.
3) Performance of Indian Equity in 2020:
*Source – Ngen Research
The above chart shows the movement of Large Caps, Mid Caps and Small Caps since 1st January 2020.
Small Caps and Mid Caps have delivered better return in comparison to Large Caps in 2020.This is a good rally for Small Caps and Mid Caps after underperformance in 2018 and 2019. Hopefully, the rally will continue.
4) Sensex performance in US Dollar terms for last 13 Years:
*Source – Investing.com
The above chart shows historical movement of Sensex in US Dollar.
Sensex in Dollar is still at almost 2007 level. This means that there has been no wealth creation for Indian equity investors in the last 13 years. In rupee terms, Sensex has given a CAGR Return of ~5% in last 13 years. The return of ~5% in rupee has come due to devaluation of rupee against US Dollar.
In the last 13 years, US equity market has given a CAGR return of ~11.5% in rupee denomination.
5) Microsoft Share Price:
*Source – Ritholtz
The above chart shows the Microsoft share price percentage change from the peak.
Microsoft was in a drawdown for 15 years between 2000 and 2015. The stock did not give any return in 15 years. The stock also crashed by ~75% from the peak in 2009.
However, during these 15 years, Microsoft as a company performed well and had good growth in earnings.
Share price growth and earnings growth of a company are two different things. The divergence can be high in shorter term.
Market timing and long term view is important for wealth creation.
Take care and stay safe.
Dr. Mukesh Jindal CFA, CFP, CAIA, Ph.D.