Is the heat of Lehman crisis not over yet?

The Indian capital markets are trading at an all-time high. Interestingly, return-wise the investors are worried, as other asset classes have given better returns than the markets.

The benchmark indices have gone up almost 9 per cent CAGR in the last one decade. In comparison, gold and risk-free bonds have given a CAGR of 12 per cent and 7.6 per cent, respectively. Moreover, less risky asset classes have grown better as compared to riskier ones. Therefore, one might say, high risk does not necessarily mean higher returns.

One of the major reasons for the equity markets not having performed better than other asset classes is the Lehman Brothers crisis. The markets have not been able to recover completely from the heat suffered due to the recession in year 2009. The road to recovery after Lehman has been painfully long.

The large cap stocks such as Reliance Industries, Bharti Airtel, Idea, and NTPC are among the stocks that are yet to rise above their pre-Lehman level. After a long time, these stocks are trading at more than 15 per cent discount.

In the last one decade, the biggest missing component is the investment demand cycle. The capex cycle in various industries may lift performance of the economy and the overall stock market. The earnings growth of the companies is also not reflecting in the rally, which capital markets are witnessing over a period of decade.