BSE Broad and Sector Indices Returns 31Dec2021
(A new blog post is available here with an update of the information as of 31Mar2022)
This is an update of my earlier blog published in September 2021. Without much ado, let us dive into the data here showing how the broad and sector indices of BSE Limited have performed on an annual and trailing basis as of 31Dec2021.
Table 1: Trailing Returns - BSE Indices - one-day to 10-year returns 31Dec2021 >
The S&P BSE Sensex on a 10-, 5- and 3-year basis delivered trailing returns of 14.2, 17.0 and 17.3 per cent respectively. These are CAGR (compounded annual growth rate) or annualised returns. (please note one-day, one-month and three-month returns presented above are not annualised).
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BSE Broad and Sectoral Indices Returns
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BSE small cap and mid cap indices have done much better than the Sensex on a cumulative basis for the past 10 and five years because small-cap and mid-cap generated superior returns in 2020 and 2021 compared to large-cap stocks.
During the calendar year 2021, stocks belonging to information technology, power, utilities (not presented here), power, telecom and IPOs (initial public offerings) have delivered spectacular returns.
Whereas, stocks in FMCG, banks, financial services, auto and healthcare sectors have done poorly as can be observed from the above table 1.
On a 10-year trailing basis, BSE indices relating to Info Tech, Healthcare and Banking generated CAGR returns of 20.7, 16.1 and 16.0 per cent respectively. Whereas, stocks relating to Power, Metal and Oil&Gas have done poorly, delivering CAGR returns of only 6.8, 7.6 and 8.8 per cent respectively.
On a historical basis, stocks relating to consumer goods (FMCG), information technology and finance have delivered superior profitability in India. And this gets reflected in the performance of these sector indices.
The profitability of debt-ridden sectors, like, metals, power and real estate is historically poor. However, occasionally, these stocks do well. But being in the nature of annuity business, power, utility and infrastructure stocks tend to produce returns closer to bonds rather than to growth stocks.
Of course, due to superior profitability in the past four to six quarters, several companies in these debt-ridden sectors have pared down their debt considerably and reducing their interest burden in the process. It remains to be seen how long this profit cycle for these sectors will continue--though it appears to be intact for another two to three quarters at the minimum.
Table 2: Annual Returns - BSE Indices - 2014 to 2021 - 31Dec2021 >
The cyclical nature of sectors and broad indices can be observed from the above table 2. For example, BSE small cap index gave inferior results in 2016, 2018 and 2019 but did very well in 2020 and 2021--though nobody has got a crystal ball as to what the future holds for small cap stocks.
What the foreign investors get in terms of dollar returns can be gauged from the BSE Dollex 30 index returns presented in table 2. The returns are influenced by the appreciation or depreciation of the Indian rupee versus the US dollar.
Table 3: BSE AllCap Index and its sector representation >
Indian indices are dominated by finance, info tech, Oil & Gas, FMCG and consumer goods stocks. These five sectors have got more than two-thirds share in the S&P BSE AllCap index as at the end of 2021, as shown above.
Stock prices ultimately are a function of superior profitability and healthy cash flows--though in the short term they are influenced more by investor sentiment, market frenzy and outflows from and inflows into market.
By focusing on sectors and stocks that generate superior cash flows, long-term oriented investors can generate inflation- and market-beating returns.
Additional data >
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References:
BSE broad indices levels
Value Research annual returns
Value Research trailing returns
Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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He blogs at:
https://ramakrishnavadlamudi.blogspot.com/
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