The BSE Sensex with its iconic buildings completed 40 years of existence on April 1, 2019, and what a roller coaster ride has it been!
HISTORY OF BULLS & BEARS
Celebrating Ruby Anniversary, this Maker / Breaker of destinies was the first Sensex to be recognized by the Indian Government under the Securities Regulation Act, allowing for official operations. History of the Sensex dates farther back however, when a bunch of stockbrokers would meet under Banyan trees circa 1855 to conduct business. This makes it the oldest stock exchange in Asia.
The Sensex’s interesting history is further accentuated by the fact that it has endured meltdowns, bomb blasts, rallies, scams, controversies and yet has thrived.
It touched an all-time high of 39,000 on April 1, 2019.
Including dividends or in terms of Total Return Index, the Sensex would have been approximately 56,000. That means your money would have grown by 560 times over the last 40 years.
Unbelievable right?
Well, here’s the chart of Sensex since its inception to visualize the rise of Sensex:
Although no one can deny that this growth is extraordinary but who has stayed invested for 40 years?
LOST OPPORTUNITY
A drawback of such data points is; they are impractical because we are looking at the lost opportunity to earn money. Many of us were not even born 40 years back. Some of us did not have enough understanding of equity markets back then to invest money. And as the mutual fund disclaimer says, Past performance is not an indicator of future performance.
So, while the data is exciting do we just let it pass?
Even though we cannot rely on past data, by closely studying the data we can direct our investments accordingly to get better returns at some risk.
TOUCH POINTS
Investica looked at the returns data since the inception of Sensex for blocks of 10 and 5 years. We, however, did not consider the point – To – point return instead took rolling returns for a better representation of daily volatility.
This essentially means that for a mentioned time period, the return is calculated by taking an average of returns you would get if you invest every day. This takes care of daily volatility.
This data implies that even if we ignore the performance of 40 years, over a shorter horizon of 5 years and 10 years, Sensex has given considerably good returns consistently.
What about the next 40?
During the month of October 2018, when the Sensex was at 33,000 levels, investor perception was; since markets were correcting, it was not the right time to enter the markets. Ironically, when markets are at 39,000 levels, investors feel markets are too overpriced and hence it is better to wait.
If an investor did wait for markets to correct in October, the investor potentially lost out on an incredible opportunity to earn since Sensex went from 33,000 to 39,000 in 6 months.
Let’s go back to the chart again,
Two of the major corrections Indian markets have seen were during the 2008 Lehman crisis and during 2015 US Fed rate hike. Â Above red lines are the time periods it took for markets to fall from all-time high and recover again. During the 2008 crisis, it took approximately 2 years 6 months for markets to fall and come back to previous high, whereas, in the US Fed Rate hike the period was approximately 2 years.
As we keep saying, Equity is not a short term product and timing the market has never worked for anyone.
The key to making markets work for you is investing early and stick through all the volatilities.
You also need to take some important steps before you start investing. Read about it here: https://investica.com/blog/investment-framework-for-every-investor/
Once understood, you are ready to ride through the next 40 years of Sensex, as a part of the success story.
