44-year Sensex return is 17%, but half of that came from just four years!

Published: April 8, 2023 at 6:00 am

It is widely recognized that stock market returns tend to be clustered, with significant gains followed by years of disappointment. In this article, we examine the yearly and monthly returns of the Sensex from April 1979 and demonstrate that the annualized return after 44 years is primarily determined by just a handful of successful years/months.

All the returns mentioned in this article are price returns. Over the last 44 years, dividend income would be significant and approximately 2% to 2.5% above the price return. However, the absence of total returns will not dilute the central result in any way.

On 3rd April 1979, the Sensex price was 124.15 (this is by back-calculation, actual trading began only in 1986). On 1st April 2023, after 44 years, the Sensex price closed at 58991.52. This represents an annualized return (CAGR) of 15%. Including about 2% dividend return, the fine return is about 17%.

Using yearly returns, we can break down the returns from April 1979 to April 2023. For instance, the return from April 1979 to April 1980 is 3.5%. The return from April 1980 to April 1981 is 35.25%, and so on. The complete list of these returns is provided below.

Date  Annual return
01-04-1980  3.50%
01-04-1981  35.25%
01-04-1982  27.12%
02-04-1983  -3.76%
03-04-1984  16.06%
01-04-1985  42.39%
01-04-1986  59.57%
01-04-1987  -8.95%
04-04-1988  -22.21%
03-04-1989  82.26%
02-04-1990  8.16%
01-04-1991  52.45%
02-04-1992  267.61%
02-04-1993  -47.32%
04-04-1994  63.57%
03-04-1995  -12.28%
02-04-1996  2.81%
01-04-1997  0.51%
01-04-1998 15.83%
01-04-1999 -7.14%
03-04-2000 37.07%
02-04-2001 -29.42%
01-04-2002 -1.85%
01-04-2003 -11.98%
01-04-2004  86.33%
01-04-2005  15.05%
03-04-2006  75.08%
02-04-2007  7.70%
01-04-2008  25.46%
01-04-2009  -36.63%
01-04-2010  78.68%
01-04-2011  9.77%
02-04-2012  -10.00%
01-04-2013  7.93%
01-04-2014  18.99%
01-04-2015  25.90%
01-04-2016  -10.58%
03-04-2017  18.36%
02-04-2018  11.18%
01-04-2019  16.89%
01-04-2020  -27.29%
01-04-2021 77%
01-04-2022 18%
01-04-2023 -0.48%


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The top six (75% plus) annual returns are

  • 267.6% Harshad Mehta Scam (April 92)
  • 86.3% 2000s bull run (April 2004)
  • 82.3%  (?) (April 1989 recovery after a 22% fall the previous year)
  • 78.7% April 2010 (financial crisis recovery)
  • 77% April 2021 (recovery after covid outbreak crash)
  • 75.1% 2000s bull run (April 2006)

Of these, 82.3%, 86.3%, 77% and 78.7% were “recoveries”. The preceding periods saw significant losses. If an investor had run away from the market after these losses, they would have missed these “big returns”. A -47.32% return followed the 267.6% return! This is known as volatility clustering (big returns and big falls occur together). Read more about it: Timing the market will work but not how we imagined!

Let us set each return to zero to see how much these returns influence the 44-year CAGR of 17%. Of course, this is unnatural and impossible. This is done only to establish a simple point: (in the absence of a scam!) If we want the rainbow, we must put up with the rain.

Remove the 267.6% gain from the Harshad Mehta scam, and the CAGR (excluding dividends) would drop from 15% to 11.7%. This is disillusioning, to say the least. All these gains we dream of by looking at past performance stem largely from a scam.

Please note that a 2% dividend return is unlikely in 1992 since the Sensex was not a large cap index relative to its market capitalization today. So the dividend yield would be much smaller.

Remove the top two returns, and the 44Y (price) CAGR becomes 10.11%. Remove the top four; it becomes 7.20%; Thus, the four big up moves, out of which the biggest was fraudulent, account for more than half of the CAGR we compute today and dream about. Remove the five top moves; the 44Y CAGR is 5.8%

What do these results mean? Though these results are unrealistic, they are disturbing. But that is the nature of the market (scams included). Big returns either precede or succeed big losses. Those who want the big returns “over the long term” will have to stick around to face both the losses and gains.

Overall returns will depend on one or two big up moves. When this occurs, the investor must not only be invested but also be invested big. Post that, they should rebalance their portfolios to lock the gains in safe assets. If they leave the invested value to the mercy of the stock market, then the final result could be disappointing.

This is why we keep saying everyone is timing the market. Why “time in the market” is not different from “timing the market”! Just the mutual fund industry wants us to time the market by being in the market earning notional gains or losses while they pocket real returns via fees and commissions. Be that as it may, for most of us, equity investing (via mutual funds or otherwise) is essential to achieve our goals.

Staying investing in the market is crucial for gains, but overstaying our welcome could be a case of “caramba! Back to square one!”. This is the simple secret behind equity investing. So invest systematically but do so with a plan.

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