BSE SENSEX: The harder the fall, The stronger the bounce

Equity markets across the world have been very volatile ever since the Ukraine/Russia war started in Feb 2022. Indian markets are not immune to these events. Some of the recent developments such as Adani row, increasing repo rates by RBI and Collapse of the Silicon Valley Bank adding more fuel to the fire. But, If one were to look at the history, these types of events are not new to the equity markets. Markets have seen many such events throughout history.. Let us look at the history of BSE SENSEX over its 43 year long history.

BSE SENSEX index was formed on April 1st 1979 with an initial value of 100. SENSEX reached its first major milestone of 1000 on July,25th 1990 at an astonishing CAGR of 23%.

Sensex reached the 10,000 mark for the first time on Feb 7th, 2006 returning 100x from the original 100 in less than 27 years with a CAGR of 19%. Finally, SENSEX climbed the 50,000 mark on 21, Jan 2021 with a CAGR of 16%. 16% return over the 42 year period is not an ordinary feat. To put this return into perspective, An investment of 20,000 in 1970 would have turned into 1 crore by 2021. Mind that this return is only for an index and there were many mutual funds which beat these index and returned better results.

But, what you need to understand is that these returns didn’t come in a linear fashion. There were many small corrections, major crashes in this 43 year journey of SENSEX.Some examples include the Indian economic crisis in 1991, the famous Harshad Mehta scam in 1992, dot com bubble and terrorist attack on twin towers, the Lehman Brothers collapse and the subsequent great financial crisis in the United States, the 2004 crash due to the loss of BJP government, demonetisation crash in 2016 and Corona crash in 2020. Even after so many booms and busts, it is interesting to see that in the long run, equity markets reward the patient long term investors.

Following heat map shows year wise returns of the SENSEX over its entire history.

Yearly rolling returns of SENSEX from 1979 to 2022

Sensex fell more than 5% only 10 times in its 43 year history. But, It is also evident that every time SENSEX fell hardest, it bounced back strongest in the subsequent years and continued the momentum for many years.for e.g SENSEX fell 22% in 1988 and rose 79% in next year and continued with positive returns of 9%,50% and 267% in the next 4 years. Similarly, SENSEX fell between 2001 to 2003 due to the dot com bubble burst and subsequent terrorist attack on the twin towers in the United States. This is the only period SENSEX fell more than 2 continuous years back to back in its history.But, the subsequent period between 2004 to 2007 was one of the greatest bull market periods in Indian stock market history. these data points suggest that equity markets are one of the greatest wealth creators in the last 40+ years and they will create in future too provided you are patient enough to let the compounding magic work for you.