Even though the fundamental strengths of the economy and other systemic factors remain important, it is investors’ underlying biases ( or irrationality). In the Indian context, despite the volatility, recent foreign capital inflows have remained unabated and have inevitably played a role in anchoring India as one of the world’s best-performing stock markets.
On the other hand, it is still investor bias that keeps some of the continent’s most promising markets out of their portfolios. Mr. Kahneman, who was well aware that investors are susceptible to irrationality, would have blushed.
Mr. Jensen’s work has also been influential in championing emerging stock markets as an unparalleled growth region. By providing indisputable evidence of the excess returns generated by passive funds over active funds, Jensen’s theory lends itself to metrics such as the Sharpe ratio, which captures the excess return of a fund over its risk-free rate on a risk-adjusted basis. It is noticeable.
From the Indian context, it comes as no surprise to investors that between 1991 and 2020, India’s benchmark index, S&P BSE SENSEX, generated an impressive total return of 3,890%. This means that his Rs 10,000 invested in 1991 had grown to his Rs 3,88,968. It will register an impressive compound annual growth rate (CAGR) of 11.73% in 2024. It’s no wonder that the proliferation of mutual funds and systematic investment plans (SIPs) tied to market-wide returns is attracting a lot of attention from India’s retail investors, who generally tend to be risk-averse.
