When it comes to determining the biggest economies of the world, the United States and India are considered the major players in this segment. And much of this possible is due to the performance of their stock markets – Dow Jones and Sensex. These markets always remain the most preferred choices of traders and investors worldwide.
If you are looking to invest in any of these markets, the first and foremost thing to do is to have proper and detailed knowledge about them. This would help you take the most appropriate investment decisions accordingly. So, here is a comprehensive comparison of two leading stock markets after taking the data from one of the best stock broker in India. In this analysis, you will two terms – Dow Jones Industrial Average Index (DJI) for US stock markets and BSE Sensex for Indian markets.
The various factors that have been checked under this analysis are:
· Returns performance
· Association between two markets
· Volatility
· Valuations
· Best-performing sectors
· Size
Performance
In regard to the returns that both US and Indian stock markets have delivered over the past decades, both the market has performed almost similar. The DJI has come up with a compounded annual return of 9.75%, on the other hand, the Sensex has yielded a return of 9.70% in the last ten years. The returns in the first five years of the decade (2011-15) were also quite at the same level with the US markets soaring at 12.86% compounded annually. According to the top stock brokers in Inda, the Indian markets grew at 12.11% compounded annually.
When looked closely, the US’s Dow Jones has performed slightly better than its Indian counterpart.
Association between DJI and Sensex
For inexperienced investors, correlation refers to a degree of the mutual connection between two variables. It essentially signifies whether the two variables shift together or move in contrasting directions or have no relationship with one another.
A correlation coefficient of 1 designates an ideally direct relationship in which the two variables sail together, a correlation of -1 specifies a flawlessly converse relationship and a correlation of 0 refers that there is no association between the two variables entirely.
Over the last ten years, the two guides and calculated a correlation coefficient of 0.54. This means that there is a semi-solid relationship between the two markets and therefore any divergence strategies must be managed cautiously.
Nevertheless, the correlation coefficient in the last 3 years has been 0.64 which means that there is a certain relationship between both of them.
Volatility
In simple terms, volatility refers to the difference between the actual return and the mean returns. It could be an excellent way to determine how much the market goes up and down in a particular period.
For some investors, this may not be a worthy indicator as high volatility is an integral component of highly dynamic stock markets.
If we make a comparison between DJI and Sensex in terms of volatility, the Dow Jones Index was 3.92% where the BSE Sensex was significantly more unstable at 5.06% in the last ten years. Considering this, it can be contingent that at least in the last ten years the Indian markets have been chancier while giving similar returns as the US markets.
Valuations
In regard to valuations, the Dow Jones industrial mean has a PE Ratio of 16, on the other hand, the Sensex has a PE ratio of 33.13. This doesn’t refer that the Indian market is overrated and one should only invest in the US Markets. It essentially means that the market thinks that the gains of Indian companies tend to rise quickly than US companies. Keeping in mind the Indian GDP has increased at a faster rate than the US GDP in recent years, this might not be an unreasonable expectation. In the last ten years too, profit after tax of Indian companies in the index grew 12.6% compounded annually in comparison to the 11% compounded annual growth of US firms.
Best performing sectors
If we consider the sectors that possess the most weight in an index, it could be a good indicator of which sectors have been rising the most in the economy. In the following table, get to known the top five sectors in that specific index by weight:
DJI SENSEX
Infotech (22.4%) Finance (41.95%)
Industrials (18.2%) Infotech (14.87%)
Financials (15.2%) Oil & Gas (11.86%)
Healthcare (13.1%) FMCG (11.96%)
Consumer Discretionary (12.9%) Automobiles (4.93%)
Market Size
This is one aspect where US markets are way ahead of its Indian counterpart. The overall market capitalization of all stocks in the DJIA accumulates to 8.33 trillion dollars, almost 8 times the collective market capitalization of all stocks in the BSE Sensex at 1.16 trillion dollars. Considering the size of the two nations, there should be no surprise in that.
If you are looking to consult one of the top 10 stock brokers in India for investments, it is necessary for you to keep a check on the performance of both markets. This would help you make the best food.