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The Equitymaster Research Digest

Thirty Year Proof That Safe Stocks Will Stay Relevant to High Risk Investors
Oct 18, 2016

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The country's benchmark index, BSE Sensex, celebrated its 30th birthday this year. Yet most Indians are unaware of the fact that the index offered returns of 16.4% per annum, since its base year (1979).

First of all, 90% of Indian middle income households do not invest in equities. As of March 2016, the total demat accounts in the country were barely 25.3 million (2% of India's population).

Most of those who do invest, prefer to speculate in high risk stocks for quick returns. As a result, most of the wealth that the Sensex has created so long, has been concentrated in few hands. And even today, such relatively safe but big returns eludes investors looking for only high risk - high return stocks.

Now the thirty year proof that I am talking about is not just about the phenomenal returns that the Sensex has delivered. But it is also about the huge weightage of large cap stocks in Indian stock markets.

Consider this. The top 50 companies in India (in terms of market cap) have on an average had 60% share of total market capitalisation, in last 30 years. In the US, the weightage of the large caps in the total market cap has hardly ever crossed 40% during this period.

So anyone who has prudently invested in the best Indian large cap stocks, at the most opportune valuations, has accumulated huge wealth in stocks over last 30 years. Unfortunately the number of such investors are far too few.

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