Three myths demystified in 2011
Not all stocks take a beating when markets fall, neither is India isolated from the rest of the world. A look at the lessons learnt in 2011 when indices tumbled. Lisa Pallavi Barbora writes. Myth 2: India is decoupledbusiness Updated: Jan 14, 2012 01:08 IST
Needless to say 2011 was a bad year for the Indian equity market. The benchmark indices, the Sensex and the Nifty declined about 25%, whereas broader indices such as the CNX 500 declined close to 27%. While global factors such as the European crisis and slow recovery in the US were the main triggers, inflation in India as well as delay in government policy-making were the main reasons behind India’s disappointing year on the stock market.
Consider this: Rs 1 lakh invested on the 31 December 2007 would be worth slightly over Rs 75,000 on December 31, 2011. These figures are bound to cause a great deal of disillusionment among equity investors.
In fact, investors have lost money if they were invested in equities for the last four years.
The premise of long-term returns that equity investments assume gets shaken if returns in a single year decline more than 20%. Risk aversion is natural fallout where investors are more likely to stay away from the asset class. However, amid the equity chaos last year, there were some critical lessons that investor can keep in mind. Market movements can’t be predicted and over the years it’s your experience in investing which makes the difference and helps you outperform the market returns.