Sensex’s roller-coaster journey: From 100 to 39,0004 min read . Updated: 03 Apr 2019, 08:01 AM IST
- Sensex, which has been a barometer for the Indian economy, has given 17%+ returns over the last 40 years
- If you had invested in Sensex 40 years ago, your returns would be much higher than gold or fixed deposits
Mumbai: On 1 April 2019, the BSE Sensex climbed the peak of 39,000 points for the first time. The 30-share Sensex, India’s oldest stock market index, also completed 40 years on the same day. The Sensex was launched in 1986 but 1 April 1979 is the base year when the index was set at 100.
“It is a matter of pride for BSE that Sensex has completed 40 years. It was the first real-time index of India and caught the imagination of the investing public. Till date it represents India’s stock markets in public imagination," said Ashish Chauhan, chief executive officer, BSE Ltd.
The Sensex is seen as the barometer of India’s growth and reflects the changes in the economy over time. So if stocks of companies in industrial, material and consumer discretionary segments, such as engineering, cement, fertilizers and consumer electronics, dominated the initial composition, the services sector came to represent it with the inclusion of financial services, telecommunications and others in the mid-1990s. From early 2000, sectors such as information technology, financial services, consumer discretionary, healthcare and even energy became important components of the Sensex.
“The S&P BSE Sensex has remained the essential gauge for the economic health of the Indian market over the last 40 years and continues to demonstrate tremendous vitality. The reputation, integrity and track record of this benchmark fully reflects the fundamental role that indices play in today’s financial market. The S&P BSE Sensex is a witness of the evolution of the Indian economy, having passed many milestones in the last 40 years. The benchmark closed for the first time above the 10,000 mark in 2006, above 20,000 in 2007 and reached 30,000 in 2017," said Koel Ghosh, head, South Asia, S&P Dow Jones Indices.
The Sensex journey
In the last 40 years, the Sensex has journeyed from 100 points to close at a level of 39,000 on 1 April 2019. There were periods of exceptionally fast growth and some periods of consolidation and slower rise. It took the Sensex 11 years to cross the 1,000 mark in 1990, but it crossed the next 3,000 points in less than a year. The Harshad Mehta scam hung over the market in this period but it also led to significant market reforms in trading and settlement. The economy too witnessed the first wave of reforms with liberalization of the investment and trade regimes fostering greater competition and efficiency.
The journey from 4,000 to 5,000 levels for the Sensex took seven years and was reached in 1999. The period also saw knowledge-based sectors such as information technology taking centre stage and stocks like Infosys Ltd and TCS Ltd increasingly replacing the old economy stocks as the most tracked and watched components of the Sensex.
In 2006, the Sensex crossed the 10,000 mark as a Chinese-led commodity boom saw a rally in global markets. The Sensex hit the 20,000 mark in December 2007 propelled by global liquidity. The sub-prime crisis hit world markets in early 2008 and by October that year, the Sensex had lost 64% of its value to sink to 8,500 points.
Over the next five years, the market consolidated and grew steadily on the back of a recovering Indian economy and a second round of reforms in 2012. From 2014 onwards, the market has been tracking Indian economic reforms and has been aided by abundant global liquidity as central banks around the world maintained an accommodative stance. Over this period, the Sensex steadily moved to 30,000 and then the new high of 39,000.
Equity as Wealth creators
The Sensex gave a compounded annual growth rate (CAGR) of 16.1% in the period from 1979 to 2019. If you take the total return index, then this is well over 17%. In the same period, gold gave a rupee return of 10%. “Over the last 40 years, the Sensex has given a CAGR of over 17% which is the highest return given by any asset class in India. It is a true reflection of growth of India over all these years," said Chauhan.
If you had invested ₹10,000 in a basket of stocks representing the Sensex and the same was rebalanced every time the Sensex underwent a change, then your corpus today would be over ₹45 lakh. The same amount of money invested in gold over the same period would be worth ₹4 lakh today and in bank fixed deposit would have grown to a little over ₹2.5 lakh, without factoring in the tax (see graph). With these numbers, there is no argument that supports a portfolio that is looking for growth not having adequate exposure to equity investments.
But the ride is not smooth and you have to stay the course to make money from stock markets. In the five years following the 2008 global financial crisis, the Sensex went up 150%, a CAGR of 20%. You would have missed the rally if you had chosen to stay safe and pulled your money out. Understand the volatile nature of markets as well as its ability to appreciate over time as economic cycles turn. This will help you remain invested so that your portfolio is able to benefit from the upturn when it happens.
“If you look at the chart of Sensex since the beginning, you will be able to see that when India smiles, the Sensex smiles, and when India cries, the Sensex cries too. It is a witness and representation of India’s victories and struggles, its hopes and worries. It is a measurement that shows India in its myriad true colours every micro second. It is the symbol of India’s aspirations and it will continue to guide India’s future generation as it has done in the past," said Chauhan.
Mint's Neil Borate in Mumbai contributed to this story.