Is Investing in Large-Cap Stocks Like TCS, Infosys, or TechM Worth It Compared to Bank Fixed Deposits?

Recent returns of large-cap IT stocks like TCS, Infosys, and TechM have raised questions among investors. Over the past three years, TCS gained (absolute returns) 18%, Infosys 14%, and Tech Mahindra saw 13.43%. In the overall industry terms, the Nifty IT index showed a moderate growth of 22.5%. In contrast, in the same period, the broader Nifty 50 index, which grew by 45.67%.Just for our context, please recall that our savings account in banks give us 3.5% per annum (CAGR). Bank’s fixed deposits can give a higher return of 6.5% per annum. Use the below calculator, to understand what a 18%, 14%, 13.43% absolute returns means in terms of annualized returns (CAGR). For example, 14% absolute return in 3 years, means just 4.46% per annum (CAGR).This performance has led many to question whether investing in such large-cap stocks is worthwhile compared to safer alternatives like bank fixed deposits. At least, bank linked savings plans are safe offering steady returns with minimal risk.Given the moderate growth of these IT stocks in the past 3-years, is it more prudent to consider bank deposits instead of large cap stocks? Returns of bank deposits may still be lower, but are at least guaranteed. So, does this type of logics make bank deposits better than our prime IT stocks?In this article we’ll explore this question. Idea is to build a long-term investing mindset. This article is not about which stocks to buy, but about the broader vision of how to practice long-term stock investing. If we’ll understand this phenomenon, we’ll know the answer posed in this article.Let’s explore this concept through the lens of low-performing large-cap IT stocks. We’ll see if it still hold merit for long-term investments or if parking funds in banks offers a better financial strategy.Absolute Return To CAGR Calculator Absolute Return (%) : Time Period (Years) : Calculate CAGR Performance Analysis of Large-Cap IT StocksOver the last three years, the performance of large-cap IT stocks like TCS, Infosys, and TechM has been mixed. TCS posted an absolute gain of 18%, while Infosys grew by 14% and TechM by 13.43%. These figures indicate low returns.Stocks20-Feb-2003-Sep-2101-Sep-24Time (Yrs)GrowthTCS2156.83842.054553.75318.52%Infosys7971700.651943.7314.29%TechM829.61441.951636.5313.49%To understand the trend more deeply, let’s look at the performance of a broader industry index.The Nifty IT Index, which tracks the performance of major IT companies, saw a significant rise from 16,649 on 20th February 2020 (pre-Covid levels) to 34,891 by 3rd September 2021. It reflects a robust absolute growth of 109% in just. However, in the subsequent three years, its growth slowed, reaching 42,787 by 1st September 2024. It was an absolute increase of just 22.5%.In comparison, the Nifty 50 Index, which represents the broader market, experienced a less dramatic post-Covid surge. It grew from 12,080 on 20th February 2020 (pre-Covid levels) to 17,323 by 3rd September 2021 (an absolute growth of 43.4%). Yet, in the same three-year period, Nifty 50 outperformed the Nifty IT Index, increasing by 45.67% to reach 24,823 by 1st September 2024.Index20-Feb-2003-Sep-21Time (Yrs)Growth03-Sep-2101-Sep-24Time (Yrs)GrowthNifty IT16649348911.54109.57%3489142787322.63%Nifty 5012080173231.5443.40%1732324823343.30%This contrast shows two segments of growth. There was a sharp recovery in the IT sector immediately after the Covid-19 crash. Then it was followed by a phase of moderate growth.In comparison, the Nifty 50 showed consistent gains over the same period. Hence, people are raising questions about the relative value of investing in large-cap IT stocks compared to the broader market. Some are even questioning the IT sector’s dismal returns and comparing it with bank deposit yields.Reasons for Investing in Large-Cap Stocks over Bank DepositsInvesting in large-cap stocks like TCS, Infosys, TechM etc over bank deposits can be beneficial. It is particularly true during down-cycles in an industry. Market cycles affect all sectors, including the IT industry. It can cause periods of slow growth or declines.However, long-term investors who continue to invest in fundamentally strong companies during these down-cycles often build more wealth over time.For example, the Nifty IT Index saw only a moderate growth of 22.5% over the last three years, but experienced a strong recovery immediately after the Covid-19 crash. Long-term investors who held onto or added to their positions during such down periods benefited when the market rebounded.Let’s look at more such historical examples.Example #1: Between Year 2002, 2004, & 2007Sideways Movement: Between the period May-2002 and July-2004, the Nifty IT Index grew from 1807.89 to 2140.75 points. In this time period of 2.17 years, the IT index saw an absolute growth of only 18.41%. It translates to a CAGR (annualized return) of 8.11% per annum which is again low in term of equity returns.Up-Cycle: People who did not get discouraged by the below par return of the period 2002-2004, they held on to their holdings. In the next 2 years, between Jul’04 and Feb’07, the Nifty IT index jumped from 2140.75 to 5805.65 points. In the time period of 4.79 years (Between 2002 and 2007), the IT index saw an absolute growth of 221.1%. It translates to a CAGR (annualized return) of 27.57% per annum. In terms of Index growth, this can be called a very good return.Inference: By holding on to equity by about 5 years, the investors saw one complete equity cycle of a down and up market. People who bought and held on to their equity holdings during the down cycle made a great return on 27.57% per annum.Please note that, as there are sideways movement and up-cycles, there will also be brief moments of down-cycles. Investing in good companies during this period will fetch even better returns in longer term.Example #2: Between Year 2011, 2013, & 2015Sideways Movement: Between the period Nov-11 and July-13, the Nifty IT Index grew from 6,168.85 to 7,249.4 points. In this time period of 1.67 years, the IT index saw an absolute growth of only 17.52% (CAGR growth of 10.16% per annum). For equity investors, this rate of grown is slow.Up-Cycle: In the next period, between Jul-13 and Feb-15, the Nifty IT index jumped from 7,249.4 to 12,464.95 points. In the time period of 3.26 years (Between 2011 and 2015), the IT index saw an absolute growth of 102.1% (CAGR growth rate of 24.08% per annum). In terms of Index growth, this can be called a very good return.Inference: In equity investing, there will be patches of mediocrity. People who accumulate good stocks during this phase will see handsome gains during the bull phase.Example #3: Between Year 2011, 2013, & 2015Sideways Movement: Between the period Aug-15 and May-18, the Nifty IT Index grew from 11,588.25 to 13,478.6 points. In this time period of 2.7 years, the IT index saw an absolute growth of only 16.31% (CAGR growth of 5.75% per annum). For equity investors, this rate of grown is very slow.Up-Cycle: People who did not get discouraged by the below par return of the period 2002-2004, they held on to their holdings. In the next period, between May-18 and July-21, the Nifty IT index jumped from 13,478.6 to 29,007.95 points. In the time period of 5.85 years (Between 2015 and 2021), the IT index saw an absolute growth of 150.3% (CAGR growth rate of 16.98% per annum). In terms of Index growth, this can be called a good return.Inference: Please note that between May’18 and July’21, the world also witnessed the COVID crash. People who stayed invested in this period, and poured in more money, saw windfall gains in time to come. So, the idea behind equity invested in be brave during down-markets and invest more. When the cycle will reverse and bull phase will come, low or negative returns will be made-up for very handsomely.Example #4: Between Year 2002, 2021, & 2025Moderate Growth: Between the period May-02 and Apr-20, the Nifty IT Index grew from 1,807.89 to 11,680 points. April’20 was the bottom of the Nifty IT Index. In this time period of 17.93 years, the IT index saw an absolute growth of 546.06% which translates in a CAGR growth of just 10.97% per annum). For equity investors, this rate of grown is only moderate considering the longish time period of 17.93 years.Rebound Post Covid: In the next period, between Apr-20 and Sep-24, the Nifty IT index rose from 11,680 to 42,974.6 points. In the time period of 22.35 years (Between 2002 and 2024), the IT index saw an absolute growth of 2277% (CAGR growth rate of 15.23% per annum). In terms of Index growth, this can be called a decent return.Inference:First, Even after holding for a very log periods like 17.93 years, post a index crash, the CAGR number can really fall (like 10.97%). A equity investor, who has stayed invested for so long, expects mush better returns. But just for information, an investment parked for 17.93 years and growing at 10.97% each year will grow by 6.46 times.Second, When investment horizon is very long like 20-25 years, several phases of corrections and crash will come. People who continued investing even during the COVID crash ended up making a annualized return of 15.23% in a time time period of 22.35 years. For our information, an investment parked for 22.35 years and growing at 15.23% each year will grow by 23.76 times.Third, Even if the rate of return is moderate like 10.97% per annum for equity, it will still beat debt instruments. No pure fixed income instrument (like bank deposits) can give such a return when time horizon is so long (like 17 years).ConclusionInvesting in large-cap stocks like TCS, Infosys, and Tech Mahindra, despite their recent moderate performance, is it worth? Certainly, it will prove advantageous over the long term compared to bank fixed deposits. While bank deposits offer stability and guaranteed returns, they often fail to outpace inflation. Hence, they fail to generate meaningful wealth over time.In contrast, large-cap stocks, even those experiencing down-cycles or periods of slow growth, have historically demonstrated strong recoveries and long-term growth.The examples show that those who stayed invested or increased their holdings during market downturns ultimately benefited from significant returns when the market rebounded.These stocks have the potential to offer much higher annualized returns than bank deposits over extended periods. Thanks to their inherent ability to bounce back from cyclical lows and capitalize on economic upturns, their return potential is much better than deposits.The key lies in patience and a long-term perspective. Markets will always face ups and downs. But investing in fundamentally strong companies allows investors to ride out these fluctuations and achieve substantial growth.Over time, the compounding effect of staying invested in high-quality stocks can far exceed the returns from any fixed-income instrument. Thus, for those willing to endure short-term volatility, large-cap stocks remain a more rewarding option than bank deposits for building long-term wealth.Have a happy investing.Suggested Reading: