Mahendra Jajoo, head, fixed income, Mirae Asset Management, said: “India is integrating more with the global markets, in terms of foreign investor participation in equities
and the bond market. So, interest rates
are aligning themselves to global markets.
” Jajoo believes that going forward, real interest rates
could come under further pressure.
Returns from gold were at par with the Sensex at 8.7 per cent CAGR, but that was only due to the rupee depreciation — the rupee has gone from Rs 46.5 a dollar in December 2009 to Rs 71.2 a dollar now. International gold returned only 3.1 per cent CAGR in the last decade.
Adjusted for inflation, the real returns look even worse. The double-digit annual rise in inflation
in the first half of the decade ensured that average consumer price index-linked inflation stood at 6.20 per cent in the decade, thereby eroding real returns for investors. So, while fixed deposits barely beat inflation, equities
and gold gave real returns of 2-3 per cent — quite a distance away from the days of 7-8 per cent real returns in the first decade of the century.
In contrast, the previous decade (2000-2009) saw double-digit nominal returns for stocks and gold while average inflation was at 5.55 per cent.
Thus, despite the Lehman crisis of 2008 and the subsequent slide and partial recovery in the following year, the wealth effect was evident.
Nilesh Shah, managing director, Kotak Mutual Fund cited another reason for the weak returns in the past decade: “A part of this is attributable to the current subdued phase in the economy which has led to de-rating of many large caps. Despite this, India is the second best equity market among peers.”
In fact, experts believe that interest rates would have fallen further if the rates of small savings schemes such as Public Provident Fund, Kisan Vikas Patra and others had been slashed faster. “The only reason that bank fixed deposit rates have not slipped more is because bankers fear that there will be outflows to small savings schemes,” said a debt fund manager.