Don't see sustained correction in largecap stocks

DEVINA MEHRA, founder, chairperson, and managing director of First Global, in a fireside chat with A K Bhattacharya at the Business Standard BFSI Summit, spoke about the risks involved in being invested in the equity markets at a time when investors are losing money. Edited excerpts.

- DEVINA MEHRA, founder, chairperson, and managing director of First Global

What's your stance on the Indian markets now in the backdrop of the recent developments?

I think largecap stocks are unlikely to see a sustained correction, but there is froth and overvaluation in select mid and smallcap stocks. Indian equities have given 15-16 per cent returns since the Sensex came into existence around 40 years ago. While equities are inherently volatile, we tend to forget this in practice. Markets are not volatile just on a day-to-day basis, but variations are high even on a longer duration as well.

In 2010-2020, we compounded just over 8.5 per cent. In essence, we got fixed deposit types of returns over a decade. If any investor had put in ₹100 in equities back in 2011, they would have got ₹230 in return in the next 10 years. In 1980, if anyone would have put ₹100, they would have got ₹700 in the next 10 years. This below par performance is what created the bull run seen since the Covid lows in 2020.

If you look at the largecap mainstream indices, we are still not above the trend line. The risk of a sustained crash is when one is far above the trend line, which we are not yet.

Market corrections on the last few occasions usually have been in double digits in the last 16-18 years. However, the fall from the peak levels in a lot of indexes has not been in double digits yet.

That's the nature of equity markets. If you go back in history, 1994 to 2003 is the only period in Sensex's history when the returns were zero. Between 2003 and 2007, the markets went up 6x as a part of the bull run in global equities. In equity markets, one has to be patient. If things are a little uncertain, it does not make sense to get out.