2022: End of Year Thoughts – A message from the CIO

Famously known as India’s mountain man, Dashrath Manjhi was a labourer who stayed in a small village in Bihar. There was a mountain in his village that people needed to climb to be able to reach a hospital and get medical assistance. Sometime in 1959, his pregnant wife Falguni Devi was injured while climbing the mountain and needed immediate medical assistance. Unfortunately, the hospital was 55 km away and she could not make it.

Heartbroken and enraged, Manjhi, took it upon himself to make medical care accessible to everyone in his village. Using merely a chisel and a hammer, Manjhi did the impossible and carved a 360-feet-long, 30-feet-high, and 30-feet-wide passage through the mountain reducing the distance to the hospital from 55km to 15 km. He did this by working on the same thing, every day for twenty-two years!

I start this note by talking about India’s Mountain man as his life is an inspiring example of a man whose hard work and perseverance was matched by his long-term goal.

Charlie Munger once famously said “Take a simple idea and take it seriously”. As investors, the obvious yet crucial takeaway from Manjhi’s story is the fact that he worked on one goal for twenty-two years. The benefit of having a long-term investment horizon is well documented and yet we often seem to forget it. Take a look at the image below.

Time Volatility Return
Relation between time volatility and return (Refer to end of document)

The blue line highlights Sensex’s rolling returns2 from 1990-2022. The green line highlights Sensex’s rolling standard deviation during the same period. As you can see it takes around five years for the return to be higher than the risk and so whenever one is investing in equities, at the very least, one would want to have a five-year investment horizon.

Whenever I am asked about a market prediction, especially at the start of the year, I go back to this chart. It is a gentle but vital reminder that having a long term investing horizon is crucial, especially when we look at the uncertain times we live in.

Since COVID has become a part of our lives, global macro variables have taken many twists and turns. The biggest challenge economies and businesses have been struggling with is the imbalance in demand and supply. Supply chains were initially disrupted with COVID and then further impacted by the Russia-Ukraine war and shut downs in China. The disequilibrium has manifested itself in inflation, which has become the biggest challenge for central banks. The accommodative/lower interest rate policies of central banks decisively reversed in the last fiscal. This has significant repercussions for asset classes across the globe.

India may not be immune to these global headwinds but it is certainly in a better position compared to others. As companies diversify their supply chain, India is emerging as an attractive option to set camp. Manufacturing exports is a theme which we could see play out in India for the next decade.

Interestingly in the last twenty years, a staggering 156 of the current BSE500 companies have generated 20% or greater dollar annual returns. In comparison only 35 of the current S&P 500 companies delivered a similar return. That number is 5 for China(SHCOMP) and 2 for Japan(TPX500).3A momentous difference!

When we look at the current BSE 500, the two sectors with the largest weights are financials and IT. Together, the sectors make up more than 40% of the index weight. 4 Furthermore, the total salaries of the employees from those two sectors is close to 50% of the total wage bill of the BSE 500 index.5 The consumption cycle is often impacted by the performance of these two sectors. Fortunately, both these sectors seem to be in good shape.

That is not to say that geo political and macro shocks will not impact businesses and valuations. They will. However, if you are willing to have a long term goal like Manjhi did, India is definitely a promising investment prospect.



  1. Source: Bloomberg. Note: The above chart shows the rolling 1yr, 2yr, 3yr, 5yr, 7yr and 10yr returns for Sensex and the volatility in these returns. Volatility has been calculated as the Standard deviation of these returns (dispersion from the mean returns). Data since Jan 2, 1990 to November 30, 2022 has been used for this exhibit
  2. Rolling returns are a way of measuring the performance of an investment over a certain period of time. They are calculated by taking the total return of an investment over a certain period of time, such as one year, and then “rolling” this period forward by a certain amount, such as a day/week/month.
  3. Source: Bloomberg. Data as on Sep 30, 2022. SHCOMP index tracks daily price performance of all A-shares and B-shares listed on Shanghai stock exchange. As on Sep 30, 2022 there were around 1957 stocks in the index. Past performance is not a guarantee for future returns
  4. Source: S&P- BSE 500 Index as on 22nd December, 2022
  5. Source: Ace Equity as on 22nd December 2022



Securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the scheme/strategy will be achieved. The facts, views & opinions expressed herein are those of the authors and do not reflect the opinions or views of IIFLAMC / IIFL Wealth Management Limited and/or its subsidiaries. This article is neither a recommendation nor a research report for investing in any sectors/companies and they may or may not form part of the portfolio of the Scheme/strategy in the future. As with any securities investment, the value of a portfolio can go up or down depending on the factors and forces affecting the capital markets. Past performance of IIFLAMC may not be indicative of its performance in the future. In view of the individual nature of the tax consequences, each investor is advised to consult his or her own tax consultant with respect to specific tax implications arising out of their participation in any of the investments.

Share it

Related Posts