Sensex Annual Returns – 20+ Years Historical Analysis (Updated 2019-2020)

[Updated – January 2019]

What have been Sensex annual returns?

What have been stock markets annual return given in last 1 year?

What have been Sensex returns since inception?

What have been Sensex returns in last 20 years?

What have been Sensex returns in last 10 years?

What has been Sensex CAGR or the average Sensex returns till now?

These are some questions that gain popularity as the year comes to an end.

During this time, we all have this uncontrollable urge to ‘know’ how markets have done in last one year. And how it compares to annual returns of the last few years.

Ofcourse, one should be interested more in how their portfolio is performing and whether they are on track to achieve the returns (%) required to achieve their financial goals.

But still, we do get attracted to things like Sensex yearly return figures. Isn’t it?

So as we have completed another year, I have decided to analyse Sensex historical returns of widely tracked market index Sensex – a widely tracked index of the Indian stock markets, which is made up of shares of 30 largest Indian companies.

Sensex closed 2018 with gains of about 5.9%.

After a lot of upheavals and volatility, 2018 did not turn out to be a very great year for the markets. But this comes on the back of a good 2017 – where making money wasn’t difficult.

But how does this compare with the longer Sensex return history and the averages?

Nifty has a CAGR of 13.1% in the last 20 years (since 1998) and 14.1% in the last 10 years (since 2008).

But that is the nature of markets. The average figures will not be achieved every year. Also for SIP investors, it is important to understand that these returns will be different from your rolling SIP returns (but we will discuss that some other day).

So below is the Sensex historical chart showing annual Sensex returns since 1991 (i.e. 2+ decades):

Sensex Annual Yearly Returns 2018 2019

To see this from another perspective, have a look at the table below.

It gives you the current value of Rs 1 lac invested in Sensex every year since 1995-96:

Sensex Annual Investment Performance 2018 2019

As already mentioned, looking at average figures has its own pitfalls. An average of 12% annual returns might sound great on paper. But it requires you to witness -30%, +20%, 5%, -15%, 13%, etc. for few years. You won’t get that 12% fixed returns, no matter how much you want it. 🙂

So obviously, the 2+ decades-long journey has been a volatile one. In the last 28 years, we have had:

  • 20 years with positive returns
  • 8 years with negative returns

You might draw out the conclusion that more often than not, markets will give positive returns.

That is true. But how much of that return will be captured in your portfolio is another matter.

So if you had invested somewhere in 2002-2003, the annual index returns after that have been 3.5%, 72.9%, 13.1%, 42.3%, 46.7%, 47.1%.

And this is not normal. This was unprecedented and chances are high that such a sequence of high positive returns, might not get repeated again for many years if not decades. So do not have such expectations of multi-year high returns from stock markets.

Infact, we should be ready to face ugly years like 2008-2009 – when index itself fell by more than 50% and individual stocks crashed by 80-90%. I have said countless times that one should invest more in market crashes or when everyone else is giving your reasons to not invest. But that is easier said than done. When a crisis like the one in 2008-2009 comes, it is not easy to combine your cash with courage.

Suggested Reading:

But that is what separates poor investors from good ones and, good ones from great ones.

Now we have seen Sensex historical returns for the last 25+ years. But that gives us only 28 data points to look at. And that is not sufficient to draw out any meaningful conclusions.

Ofcourse it is interesting to look at annual return figures. These give us a benchmark to compare our own portfolio’s performance.

But it is very important to understand what these annual figures won’t tell you. We can pick and choose data to prove almost anything – as it has been rightly said – “Torture numbers, and they’ll confess to anything.”

You might find people telling you that markets can give you 15-20% returns. And they might even show you data to prove it. But just picking one particular Sensex 5-year return period or even a 10-year period will never give you the complete picture. You need to see how markets have behaved in ‘all’ such 5-year and 10-year periods.

So when talking about Sensex yearly returns, lets not just evaluate year-end figures. Instead, let’s analyse rolling 1-year returns. That will give us a better picture.

I have used monthly Sensex historical data since January 1990. So that is where we start.

Now to calculate one-year rolling returns, we pick every possible 1-year period between January 1990 and December 2018 (on a monthly basis).

So we have the following:

  • Jan-1990 to Jan-1991 – 1st one-year period
  • Feb-1990 to Feb-1991 – 2nd one-year period
  • Dec-2017 to Dec-2018 – Last one-year period

In all, there were about 336 rolling one-year periods.

And this is what Sensex did in these one-year periods:

Sensex Rolling 1 Year Returns 2018

And here is the graph of these returns (since 1997):

Sensex Rolling 1 Year performance 1997 2018

If you study the graph carefully, you will find interesting things.

Some 1-year periods have seen returns of more than 75%. But there are also periods of major cuts (like the early 2000s and 2008-2009).

Now one obvious thing to note here is that when rolling returns are low for some time, then chances are high that rolling returns will increase in near future (as can be seen in sharp up moves after low returns in the above graph).

You might see it from the PE-lens of investing more at lower PEs or investing more when Returns in last few years haven’t been good.

I leave it up to you to draw out your own conclusions.

Another important point to note here is that these graphs and tables are based on Sensex levels. It does not reflect the impact of dividend reinvestments. The index that captures ‘dividend reinvestments’ is called the Total Returns Index (TRI). So basically, Total Returns Index or TRI is Sensex including Dividends.

Now 2018 didn’t turn out to be a very good year for most market participants (after 2017 being a really good one).

But for long-term investors, a year of low returns would bring in a lot of opportunities if we are observant enough. And I am not just talking about index levels here. Even individual stocks offer various opportunities by oscillating between their 52-week highs and lows.

As for 2019, there is no point in predicting what will happen.

So let’s not rush and instead, wait for another 365 days to see how next year’s Sensex annual returns turn out to be. I am sure we will have interesting data to add to the Sensex return history soon.

Note – If you want a similar analysis for Nifty annual returns, then do check out Nifty 50 Annual Returns Analysis (20+ years).

Dividend Investing in Indian Stocks

A poston The Motley Fool inspired us to write about dividend investing in Indian stocks.
They say that if a person plans to have a long term portfolio of 10 stocks, atleast 3 should be good dividendpaying stocks.
Companies generally pay dividends when they have stable, predictable cash flows and don’t have troubles covering their dividend obligations. So when you invest in good dividend paying companies, it can be safely assumed that the chosen company is there for the long run.
A talk on stock dividends generally leads to further discussion on its Current Yield (Ratio of Dividend Paid & Current Market Price in percentage terms). Read more about Current Yields here. We will again take up yields later in the post.
It is important for a long term investor that when he selects a stock for its dividends, he looks beyond just its current yield. What a stock pays as current dividend is not as important as its future dividends. It is also important that dividends are sustainable & keep coming year after year.
One interesting concept given in The Motley Foolis about Effective Yield – Dividend Yield measured by referring to the original purchase price. Even if a stock carries a modest yield when you buy it, rapid dividend growth can boost your effective yield very quickly, making it much more attractive.
To indicate the relevance of Effective Yield, we take up Clariant Chemicals (I) Ltd. (BSE Code: 506390), a mid cap known for generous and increasing dividend payouts.
In April 2007, Clariant paid a dividend of 180% (at face value of 10). At a then market price of Rs 300, it translated into a yield of 6%. Come FY 2011 & it paid a total dividend of 100% (Interim) + 200% (Final). This translates into a Current yield (CMP – 650) of 4.6%. But if we calculate the effective Yield (@2007 Purchase Price), we have an effective yield of almost 10%. This effectively means that by means of increasing dividends alone, the stock would be able to pay back the investment in less than 10 years!
So what does dividend investing offer to a Stable Investor?
Dividend Investing can help Stable Investor generate an ever-increasing stream of cash. This cash can then be deployed to buy more such assets and so on…
An important point is that one should not be fooled by high dividend yields. The reason for high yield may be a sharp fall in market prices or a one-time special dividend payout. It is very important to focus on sustainability of business when one is investing for dividends. There is no use investing in business for dividends, when the company is not in a position to exist after some time.
The Motley Fool has another insightful post on successful dividend investing that can be found here.
Like what you read, subscribe to Stable Investor.



Market Timing Or Disciplined Investing – Which is More Sensible?

If you have read some of the older posts, you would have a fair idea about what Stable Investor is all about. And you will also understand that timing of stock markets is not what this website is interested in. And that is because for all practical purposes, it does not work!
A famous columnist once said,

“The market timer’s Hall of Fame is an empty room.” 

And the great stock picker Peter Lynch once remarked,

“I can’t recall ever once having seen the name a market timer on Forbes’ Annual List of Richest People.”
This clearly shows how successful (or unsuccessful) market timers have been. In an ideal world, an investor would have all relevant information and would know when to invest and when to get out of markets.
To explain these concepts, lets take a scenario, in which there are 3 investors – A, B and C. All three are ready to invest Rs 5000 every month from January 2000 onwards. But timings of their investments are different. 

Investor A invests at lowest index level during the month (i.e. A has all the information);

Investor B invests at highest index level during the month (i.e. B mistimes the market every month!); 

Investor C is indifferent to news flow and invests at month-end closing prices. Each one them has invested a total of Rs 7,20,000 in 144 months.
So where do A (Perfect Timer), B (Perfect Mistimer) & C (Indifferent Investor) stand at the end of 12 years?
Market Timing Make Money
This analysis shows that the difference between a Perfect Timer (A person who has all the insider information) and an Indifferent Investor (Does not care about intra-month fluctuations and has automated his investment process to invest at month ends) is of just 6%. Just 6%.

That is, if you are ready to invest in a disciplined manner for long term, having information and timing does not matter much. Even an indifferent person can make money by investing dispassionately.
So what does this analysis point to?

  • It should be understood that there is no point in trying to time the market. Though it has been tried by millions of people and people have made money and have become millionaires, the fact remains that it is neither easy nor feasible for a average investors like us.

  • Timing is possible. But only for those who are part of the inner circle – people who have insider information.

  • There is a difference between information and wisdom. An investor should be vary of all information being bombarded at him and one needs to be wise enough to filter out the noise.

  • As a regular retail investor, it makes sense to keep on investing in a disciplined manner. The reason being that there is not much to lose (6% – Refer to above example) if an investor decides to ditch time-the-markets approach.


And wish you all a Merry Christmas to all the readers!
Stock Market & Christmas



PE Ratio of Indian Markets – A Long Term Analysis

Price to Earnings ratio (P/E ratio) is a measure of price paid for a share relative to the profit earned by that share; i.e.


You can read more about P/E Ratios here & here.


They say that it is best to invest when valuations are low.

Sensex is currently (December 2011) trading at a P/E of 16.5. So is this the right time to invest? Is this what experts call a low valuation? We at Stable Investor have decided to answer these questions.

Analysis of Sensex’s last 12 years data (from 1stJan 1999 onwards) reveals a few interesting points –
  • Over any rolling period of 5 years in last 12 years, Sensex has not given negative returns! So if you are ready to stay invested (in this case, in an Indian Index Fund) for a period of 5 years, you won’t lose money. 
  • Returns earned during last 12 years, when segregated on basis of P/E ratios are –
Returns (Over 3 & 5 years) & P/E Ratios

This clearly indicates that at current P/E of 16.5, we have a chance of earning more than 15% per annum for next 3-5 years!

(Caution – This statement is made on basis of historical data. Past performance is no guarantee of future performance.)

So after analyzing this interesting relationship between P/E Ratio and Returns, what does a Stable Investor do?
  • Stable Investor is now in a better position to respond to people’s view that it is better to invest in markets of lower multiples (P/E). Our analysis clearly shows that if investor invests in markets of lower multiples, probability of earning high returns is very high. 
  • P/E Ratios are still relevant for judging overall valuations of markets, if not individual stocks. 
  • It is advisable to invest when markets are trading in early teens (i.e. 13<P/E<16). It has also been seen that Indian markets tend to stay between P/E Multiples of 12 and 24 (Read Indian Markets PE 12 to 24 for details) 
  • P/E Ratio is a beautiful indicator of market’s overall valuation. But before making any buy or sell decisions, an investor should also look at a lot of other information/data.
Update – You can check the latest PE-Ratio Analysis of Indian Markets in 2013 or 2012. For constant updates about Indian Markets’ PE, P/BV Ratios, please check the State of Indian Markets.

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Believe Us, You are not Warren Buffett!

Oracle of Omaha, Warren Buffett has been in news lately for tipping his son Howard Buffett to be the new chairman of Berkshire Hathaway (source). By profession, Howard is a farmer. Company’s investment strategy would still be governed by the CEO and Board of Directors. But Warren Buffett’s son would serve as a Custodian of Company values rather than take part in regular day to day affairs.

So what makes Warren Buffett so special? On very first page of his famous and revered Annual Letters to Shareholders (2011, 2012), it is mentioned that from 1965-2010 (a period of 45 years), Berkshire has had a CAGR of 20.2% i.e. your money doubles every 4 years!

Can average investors like you and me, who don’t know so many things beat that performance?

Can we earn 20% year on year for decades? I doubt that.

you are not warren buffett
You are not Warren Buffett. Period.
 

Such superlative performance can have have the effect that average investors try to become the next Warren Buffett. But in doing so, they would be making a grave mistake. That’s because-

  • Most profits made by Berkshire come from owning entire companies, which an average investor is incapable of doing.
  • Though Buffett gives independence to individual companies’ management, he always keeps a tab on them to see that they don’t deviate from Berkshire’s simple but sacred principles. As far as an average investor is concerned, he doesn’t even meet any member of the company’s management.
  • Buffett owns the perfect business of insurance. This is equivalent of having a constant source of interest-free loans given to buy shares of other companies. Now who among us can boast of ownership of such a business?
  • Inspite of being famous for having a holding period of forever, Buffett occasionally sells stocks. Unlike us, he doesn’t require money for his basic needs. He sells when he does not see value in his investments or wants to fund more lucrative investments.
  • Unlike average investors, he has access to loads of insider information and has an army of people who can do comprehensive number crunching for him. This augments his investment decision making process.
  • Buffett is a fast and voracious reader. We can’t imagine an average investor to read Forbes, Wall Street Journal, Financial Times, New York Times, USA Today and Omaha World-Herald every single day of the year, decade after decade. (For Indian Investors, replace above names with Indian financial newspapers and publications). Even if a person does read a few good publications, the question arises whether he will he be able to utilize and interpret this information to his advantage?
  • An average investor does not get deals which are skewed heavily in his favor. Buffett got one hell of a deal from Goldman Sachs, where he was earning $500 million every year for doing simply nothing!!! And when Goldman Sachs decided to redeem the preferred stocks, Warren was the unhappiest person in the world as any normal person would hate to lose a free cash flow of $500 Million an year. Very recently, he entered solar energy via Topaz. An interesting article shows once again that why and how he lands up such delicious deals.

Warren Buffett had once said – My wealth has come from a combination of living in America, some lucky genes, and compound interest”. Out of these three, only compound interest, is under our control.

Though compounding has a peculiar problem, it still works for those who are patient enough.

So an average investor should focus more on buying good stocks and allowing compounding to show its magic. But instead, what he does is that he is constatnly on a lookout for stock tips and is looking to find the next multibagger. As a sensible investor, one should be prepared for opportunities which markets throws up every now and then. And when that opportunity comes, be prepared to take advantage of them.



Large cap Nifty Stocks available at deep discounts

On 25thNovember 2011, Nifty closed at 4710 – A level 26% lower than highs of 2007-2008 and 2011. So does it mean that all 50 stocks that make the index are following a similar trend?
Before answering this question, I would like you all to know that Nifty is made up of stocks of 50 companies representing 24 important sectors of Indian economy. All these stocks have different weights. And for all practical purposes, the index can be considered to be a good enough representative of stock markets.
NSE itself provides a lot of information about Nifty like Full list of constituents, calculation methodologies, etc. for retail investors.
I did some quick calculations to see how individual Nifty stocks were placed with respect to their 2007-2008 & 2011 highs –
Nifty Stocks 2008 2009 Lows
Nifty Stocks – Discounts to their 2008 & 2011 highs
As evident, shares of companies like RCom (Reliance Communications) are down 92% & 66% from their highs of 2008 & 2011. RCom, because of various negative reasons may not be the best stock to evaluate. But this small analysis also throws up some interesting insights about other large caps –
  • Sterlite Industries – According to a few, another Reliance in making, is down 68% & 58% 
  • Tata Steel is down 64% and 50% 
  • BHEL is down 54% & 50% 
  • Reliance Industries – Bellwether of Indian stock markets, sitting on a cash pile of more than 16 Billion Dollars, generating cash of around a Billion Dollar every quarter is down a staggering 54% from its 2008 highs and 35% from its 2011 highs! 
So what should an average investor do after witnessing shares of mighty and blue chip companies fall like nine pins?
  • Long term investors should understand that though index is down around 25%, good individual stocks like Reliance Industries, Tata Steel, SAIL & State Bank of India are down more than 60%. And these are not small or mid caps; these are full-fledged large caps!
  • This analysis does not suggest that there won’t be any further fall in these scrips. 
  • It makes sense for long term investors to continue with their SIPs in good mutual funds or index funds. Also investor should start selectively buying these large cap stocks, which score high on sustainability parameter and have visibility in revenues/profits.



200 Day Moving Averages (200DMA) Based Investments – 5 Years CAGR

In the previous post, I analyzed returns on investments based on 200DMA and how such investments performed over 3 year periods. This post is an extension of the thought with only change being the increase in evaluation period from 3 years to 5 years.
Just to remind everyone, 200DMA is calculated by taking the arithmetic mean of all values in consideration (Stock prices, index levels) in last 200 trading sessions (40 weeks). Before going forward, I would recommend that you get a basic understanding of how to calculate 200 Day Moving Average & how to calculate CAGR
You can easily find data for last 20 years on NSE’s or BSE’s website. Similar to that in previous post, a comparison of 5 years compounded annual growth rate (5Y-CAGR) was made against the index’s distance from 200DMA.
200 Day Moving Average Returns 5 Year
Correlation | Investing based on 200DMA & 5 Year Returns (CAGR)
The blue portion indicates index’s level (+/-) from its 200DMA. For example, in region marked P, index was trading at levels 20% lower than its 200DMA.
The red portion indicates returns over a 5 year period on CAGR basis.
A few interesting results that can be seen from the graph are –
  • In regions marked P, Q, R, S, & T, the index was trading 20% lower than its 200DMA. And as red graph in these regions indicates, returns have always been in positive territory.
Possible Deduction: Chances of your investments earning a positive return are more if you invest at times when index is trading at a discount of 20% or more to its 200DMA.

  • Region A (i.e. Year 2000-2004) is a possible outlier in this analysis. During this period, India was in long term secular bull market and as evident from the graph, relation between 5Y-CAGR and distance of index from its 200DMA is not evident. Returns continue to be positive even though Distance from 200DMA continuously switches between positive and negative territories.
This 5-Year analysis and a similar 3 year analysis done previously reveal that if an investor is ready to invest in markets trading at large discounts to their 200DMAs, probability of earning positive returns over long terms is quite high.

Though 200DMA is generally considered as a tool to be used by traders, it can very well be a potent tool in the hands of a long term investor who wants to time his entries in the market.

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200 Day Moving Averages Based Investments – 3 Year CAGR

200 Day Moving Average (or 200DMA) is a popular ‘weapon’ found in every technical analyst’s or a trader’s toolbox. And surprisingly, it is one of the very few technical analysis tools that are easily understood by those who don’t respect technical analysis, i.e. even a fundamental analyst understands the importance of 200DMA


How To Calculate 200DMA

200DMA is calculated by taking arithmetic mean of all values in consideration (Stock prices, index levels) in last 200 trading sessions (40 weeks). 200DMA is generally used to assess long term trends. Another tool regularly used by traders to assess short term trends is 50DMA. Generally, a stock trading above its 200-day moving average is said to be in an uptrend and is being accumulated; one below it is in a downtrend and is being sold. (Learn how to calculate CAGR)

200DMA & 3 Year Returns

To find out whether there is a correlation between Investing based on 200DMA and returns obtained over a period of 3 years, I analysed Nifty’s data of last 20 years.

A comparison between 3 year CAGR and index’s distance from its 200DMA was made.

200 Day Moving Average 3 Year Returns
Correlation | Investing based on 200DMA & 3 Year Returns (CAGR)
The red portion indicates index’s level (+/-) from its 200DMA. For example, in region marked P, index was trading at level which was 20% lower than its 200DMA. The green portion indicates returns over a 3 year period on CAGR basis.

A few observations from above graph are –
  • Regions marked A, B, C, D & E had Nifty trading at level 20% (+) above its 200DMA. And as green graph shows, returns obtained in all 5 regions have been negative. As of now, discussion on region F is being left out intentionally.
Possible Reason: Chances of your investments earning a negative return are more if you invest at times when index is trading at a premium of 20% or more to its 200DMA.
  • In regions marked P, Q, R, S and T, Nifty has been trading at level 20% (-) below its 200DMA. And as green graph shows, returns obtained in all 5 regions have been positive.
Possible Reason: Chances of your investments earning a positive return are more if you invest at times when index is trading at a discount of 20% or more to its 200DMA.
  • It is assumed here that investor is investing in index as a whole using an index fund or something similar. Similar graph drawn for individual stocks may show different results depending on sector’s business cycles.
  • Region F (i.e. Year 2000-2004) is an outlier in this analysis as during this period, India was in long term secular bull market and as evident from graph, relation between 3Y-CAGR and distance of index from its 200DMA is not evident. Returns continue to be positive even though distance from 200DMA oscillates between positive and negative.
This small but interesting analysis shows that though 200DMA is generally used by traders, it can be a handy tool in hands of a long term investor as well. On broad levels, it actually helps investors understand the general direction of overall markets. 

It is therefore advisable that one should always have a look at a stock’s 200DMA before investing in it.

You can read a similar analysis where 5 year returns were investigated for having a correlation with investments based on moving averages.

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