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While both the bellwether Sensex in India and the US Dow Jones hit all-time historic highs in 2013, it's the latter that is stealing the show. Investors would have been far better off investing in the Dow Jones than in the Sensex. Over the past year, Rs 100 invested in the Sensex at the beginning of the year would have been worth Rs 109 in end-2013. However, had the same been invested in the Dow Jones, the world's second oldest index, the value of investments would have been Rs 141, an outperformance of 29.3 per cent.
Despite the fact that India's frontline index has been on a roll in 2013, the fall in the rupee has dented its performance. Over the past year, the Dow Jones increased 41 per cent in rupee terms. Domestic investors who have invested in dollar-based investments last year have made fantastic returns.
Experts say this is largely because of the recovery in the US economy. Says Sankaran Naren, Chief Information Officer, ICICI Prudential MF, which runs a US-based domestic fund: "Basically, after the financial crisis of 2008, they have done a good amount of surgery, which has resulted in a broad-based improvement in their economy, and now it has begun clocking good growth rates."
The rupee had gone into a major tailspin as the US Fed spooked the foreign exchange market. The rupee plunged 12.7 per cent to Rs 61.92 against the dollar in a year which also saw the rupee hit its all-time low of 68.85. Any fall in the rupee increases the gains of domestic investors who hold dollar investments.
The Sensex hit an all-time high of 21,326 on December 9, and the Dow Jones hit an all-time high of 16,479 on Thursday.
In absolute dollar terms, the Dow Jones returned 25.7 per cent in 2013 as investors have been moving out of debt and into equity. Andrew Holland, chief executive officer, Ambit Investment Advisors, says, "There has been a move from bonds to equities in the US and obviously the US economy has started to pick up. Developed markets are doing particularly well as compared to emerging markets."
But the Sensex has lost in dollar terms. The fall in the rupee has seen the Sensex slip 3.6 per cent the past year, adjusted in dollars, eroding the returns of foreign investors. Despite this, foreign investors are continuing to pour money into equities in emerging markets and money continues to come India's way. FIIs invested Rs 14,807 crore in December, around $2.4 billion. Holland says, "Foreign investors will continue to favour India and pour more money. But developed markets will be favoured and emerging markets will play catch-up."
Indian markets will continue to do well, on the back of a strong recovery in the US. Says Holland: "If the US picks up, that usually helps the global economy."
The US Fed's tapering announcement is also not likely to impact global markets. Says Naren: "The news of tapering is positive because it points out that the economy is doing well. But the only point is that you can no longer say the US is dirt cheap now. But there are quite a few stocks in the Indian market that are going very cheap."
