Japan’s 30 Year zero return in stock market – Can it happen with India? Nifty vs Nikkie

Japan’s 30 Year zero return in stock market – Can it happen with India? Nifty vs Nikkie

hey everyone 25 years ago Nifty was at levels of around 1,000 and today Nifty is touching levels of around 25,000 That’s 25 times growth in last 25 years So if someone would have simply invested in Nifty50 25 years ago his or her wealth would have grown 25 times But I know that some of you would have not even existed that time and some of you would be too young to invest However today the question is can the Indian stock market particularly Nifty replicate this 25 times growth over the next 25 years well it may sound insane but it is quite possible because it’s simple compounding In last 25 years Nifty has grown at around 13.5% CG rate to fetch 25 times return And if Nifty can grow at the same rate it would touch levels of 6 lakh Yes you heard it right Even if you take a little conservative number say 12% CG growth Nifty can potentially touch levels of 4.25 lakh That’s the power of long-term investing in a growing economy like India But here is the uncomfortable question many investors are asking What if this growth thesis does not play out this way for instance in 1990 Japan was fast growing futuristic and booming market And yet from 1990 to 2012 the stock market crashed 80% and stayed flat for over 30 years Even today the index is barely above its 1989 high Question is can this happen to India as well so in this video we’ll try to understand the Japan story Why stock market underperformed for decades and can something similar happened to India as well all right let’s get started To understand why Japanese stock market underperformed for decades it’s important to understand what happened before 1990s So during 1980s while India was trying to stabilize its economy Japan was already firing on all cylinders Post World War II Japan had rebuilt itself into a manufacturing powerhouse By the 1980s companies like Sony Toyota Panasonic Mitsubishi were dominating global markets The world saw Japan as the future Even the US was afraid of losing its economic supremacy to Japan and stock markets reflected this optimism Nikki 225 which is Japan’s version of Nifty went from around 6,000 in 1980 to nearly 39,000 in 1989 That’s a 6.5 times rally in just 9 years Real estate was even crazier At one point people said that the land under the Imperial Palace in Tokyo was worth more than entire land in California Banks were giving out loans not on income but based on the rising value of land as collateral It was a classic bubble driven more by asset price inflation than real productivity gains It was clear Japan wasn’t just an economic miracle It was a bubble in the making So what caused this dream to crash in December 1989 the Bank of Japan which has kept interest rate very low for years finally realized that things were getting out of hand So they started tightening monetary policy Interest rates were raised in phases from just 2.5% to 6% over the next 18 months Now here’s the thing Most of Japan’s boom had been built on cheap borrowing So when borrowing became expensive the entire house of cards started shaking Investors who had borrowed to buy stocks began to unwind their position Panic spread and just like that the air began to come out of the bubble Nikki hit a peak of nearly 39,000 in December 1989 But within 3 years it had crashed to 14,000 level a near 65% fall Between 1990 and 2005 Japanese stock market tried to bounce back many times Government would launch stimulus package The central bank would cut interest rate again But every time the market bounced a little it fell right back again Question is why so one big reason was deflation While most countries worry about inflation Japan was stuck with the opposite problem falling prices At first glance it might sound good Prices are falling What is the issue but deflation is actually a dead trap for an economy Because in case of deflation consumer delays spending because they expect prices to fall further Businesses see lower profit so they cut investments Workers don’t get salary hikes and jobs become less secure Banks stop lending as people don’t want to borrow in a falling economy So demands lows profit fall and the entire system gets stuck in a negative loop That’s exactly what happened in Japan The Bank of Japan tried everything They kept slashing interest rate from 6% down to nearly zero by 1999 But it was too late The damage had already been done Debt levels were too high Asset prices had collapsed and public confidence was shattered Even zero interest rates could not revive borrowing for business growth Eventually Japan had to try quantitative easing That is injecting money into the system to push up inflation and growth But for over two decades nothing really worked As a result from 1990 peak to almost 2023 the Japanese stock market gave zero real returns Even today when adjusted for inflation Japanese investors from 1989 haven’t made their money back And that’s why Japan became a cautionary tale an economy that went from world leader to stagnation a market that rose too fast and never truly got up again So now the big question is can what happened to Japan happen to India too it’s a fair question When you hear things like Nikki hasn’t recovered in 33 years or Japan was the world’s second biggest economy and still crashed you can’t help but wonder if India might face something similar But here is the truth India today is in a very different place than Japan in the 1980s Let’s break it down So if we compare Indian stock market with Japan is our market rising yes But are we in similar bubble absolutely not First look at valuation Japanese stock market Nikki touched P of around 60 during its 1992 peak Clearly not sustainable levels Nifty trades at around 20 to 22 earning multiple which is reasonable for a growing economy Most large companies are profitable cash generating and not overleveraged Second look at debt levels Japanese corporates were drowning in debt in the ’90s Indian corporates today have deleveraged themselves massively since 2015 Even the government is managing fiscal deficit very cautiously Third look at the demographics Japan faced an aging population and shrinking workforce India has the youngest workforce population among major economies which is a huge long-term advantage Fourth reason is structural growth Japan in the ’90s was a mature economy with limited domestic demand left to unlock India is still developing Infrastructure consumption digitization manufacturing all in early growth phases And fifth look at banking and financial regulation Japan’s bank were lending recklessly with minimal oversight India’s RBI is conservative We saw that infest bank and other cleanup moves NPA have come down sharply Credit quality is improving So can the Indian market face correction absolutely Can there be bad years of course every market has them But a 33-year no return scenario like Japan well that seems extremely unlikely unless we completely lose macro discipline which so far we haven’t In fact today Indian economy has one of the best macro in the world Our inflation is well under control Our fiscal deficit is under control Our GDP is growing at one of the fastest rate in the world Bottom line is India is still in its growth story Not the end of it So instead of fearing a Japan style crash we should ask are we investing in the right businesses with the right expectation and enough patience Having said this we need to keep a close eye on the Indian economy In my opinion India’s demographic dividend is its biggest strength with over 65% of India’s population under the age of 35 and every year more than 1 cr young Indians are entering the work working age However we can only leverage this demographic dividend if India creates the right environment Massive job creation rising wages more disposable income higher saving more investment and a strong consumption growth This creates a virtuous cycle Jobs that leads to consumption that result in profits that result in investment and that result in more jobs And that’s how a 4 trillion economy can become 20 trillion in the next 25 year There are some good signs like India is pushing for manufacturing sector infrastructure green energy to create jobs and sustainable growth Then startups are generating new age employment Then formalization via UPI GST is slowly improving But here is the risk A young population alone does not guarantee growth If the jobs don’t come it can create a big problem I believe that today India’s youth is aspirational but impatient If they don’t get jobs that match their skills and degree it creates massive discontent Also the fact is there’s a massive income inequality A few skilled worker earns lakhs per month while millions earn just 105,000 a month This gap can lead to political polarization demand for freebies and economic inefficiency Also remember that the demographic dividend is not permanent In the next 20 25 years our aging population will rise and if we don’t capitalize now we’ll grow old before we grow rich So I think that India today needs jobcentric policies If we get it right India’s growth story can be unstoppable If you get it wrong we may still grow but not fast enough to lift 1.4 billion people into prosperity Another point I think we should discuss is technology and innovation One of the big reason Japan struggled post 1990 was because Japan could not lead the next wave of innovation It had great companies like Sony Toyota Panasonic Mitsubishi that were dominating global market mainly into hardware But the future was software internet mobile AI and now deep tech And that was led by US companies like Google Microsoft Apple Facebook Amazon They dominated the global market and now they’re leading AI innovation with companies like OpenAI I believe for India to grow at a faster rate this innovation in technology would play a significant role And while India has made progress with UPI India stack and a growing startup ecosystem we’re still far behind the US and China when it comes to cutting edge innovation The US continues to lead in AI semiconductors biotech and deep tech China is pouring billions into quantum computing electric vehicles and AI infrastructure And let’s be honest India has missed the AI bus for now Even though we have the talent we haven’t yet built the institution deep research or capital scale needed to lead global innovation So this is both an opportunity and a warning If we don’t invest seriously in R&D support deep tech startups and fix our education to industry pipeline we risk becoming just consumer not creator in the global tech economy Okay let me not stress this video further I’d conclude by saying that history teaches us that no country is immune to long-term challenges Japan had everything going for it in the 80s and still struggled for decades But India’s story is different We are still a young economy a young population and we are getting just started Yes there are risk from job creation to execution gaps But at the same time we have digital infrastructure entrepreneurial energy and global tailwind on our side I’d like to be both realistic as well as optimistic And when I look at India’s demographic dividend I choose to see the glass half full If you invest in people skill and infrastructure then India’s best days are still ahead of us And if the Indian economy would grow Indian stock market would continue to reward the investors Now you tell me in the comment are you bullish or bearish on the future of Indian economy and stock market and where do you think Nifty moving in the next 10 20 years if you find this video useful do share within your friend circle I’ll see you next video Till then take care

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