Over the last five years, FDs have managed to deliver better than equity returns. So, do you think that FD or gold will deliver better than equity in the next five years or is equity still a superior option according to you?
Yes, this is what I expect. And if you look at it in a different way, there has been a downward trend even in FD rates and returns are also taxable there. Further, owing to a dramatic decline in the markets in March and the recovery soon after, there has been an advantage that the stocks of many strong and good companies are now available at affordable valuations.
My expectations from equity are based on the anticipation that there are some good companies that will return to normalcy and be able to grow and restore their earnings.
However, I also acknowledge the fact that the last three months have been a washout of sorts and even the next six months may turn out to be like that. Further, things will take time to normalise and many businesses may permanently face losses. But having said that, if you leave aside the period of the next 6-8 months, I expect that equity in a five-year period will help you beat inflation and fixed-income returns.
Coming to the extent of returns, I feel that there will be an overall fall in returns, such as a fall in FD returns, inflation rate, etc. So, if inflation and interest rates won't rise and equity is able to provide even little better, then that return will also magnify. Having said that, we should reset our return expectations from our long-term equity investments. Some ten to twenty years ago, equity used to give returns in the range of 12-15 per cent. But today, even if one is able to get long-term equity returns in the range of 10-12 per cent, then that would also be a good return.