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Last 5 Years, Next 5 Years – A small study on Indian Stock Markets

Everyone interested in stock markets these days has following perception:–
Markets have not done anything in last 5 years. The index has not moved anywhere at all!!
And that is true. Numerically speaking, markets seem to have done almost nothing in last 5 years (2008-2013).
Now it seems sensible & obvious that one should buy low and sell high. But what should one do when markets have not done anything substantial in last few years? And we are not talking about individual stocks here. We are talking about broader markets. The indices. Individual stocks can take an altogether opposite trajectory than the market.
To answer this question, we decided to look back into the past. We analysed Nifty’s data for last 22+ years (1990-2013). We checked this data for two things:
  • Returns during last 5 years (for everyday since 1995)
  • Returns during next 5 years (for everyday till 2008)

And what we found is summarized in table below –
 

Returns in last 5 Year – Returns in Next 5 Years – Correlation

What the above table means is that – “If returns of last 5 years are not great, chances of having great returns in next 5 years are pretty high.”
Now that should bring a smile on faces of those who keep cribbing about poor returns in last 5 years. 🙂
So will the market give stellar returns in next 5 years (2013-2018)? The answer is that we don’t know. But as per historical data, chances are quite high.

So, will you take chances now? Will you go ahead and invest for next 5 years? What will you do?

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SIP on Steroids – How to give boost to your regular investments?

(Latest Update) – You can read an updated and more detailed analysis of the PE and other ratios here.

We decided to use this insight to boost our SIPs.

For our analysis, we started with SIP of Rs 5000 every month, from January 2000 and kept on investing till December 2011. A total of Rs 7.25 Lac was invested in 145 instalments. Now we add the Boost. Whenever markets PE fell below 15, an additional Rs 5000 was invested in that month i.e. a total of Rs 10,000 was invested in that particular month. This happened in 23 of the 145 months and an extra Rs 1.15 Lac boosted the normal investment of Rs 7.25 Lac. This took total investment to Rs 8.40 Lac.

So what is the current value of the investment? Did the boost help in earning higher returns? Read further. The investment of Rs 8.40 Lac stands at a Rs 23.8 Lac. And if SIP was not boosted by Rs 1.15 Lac, it would have stood at Rs 19 Lac.

In an earlier post about timing the markets, we saw that it doesn’t make sense in trying to time the markets. If earning a better-than-average return is the aim, it is enough to invest regularly in a disciplined manner rather than trying to time the markets.

Let’s suppose that you as have decided to invest at regular intervals. This type of investment can easily be executed by means of SIP or Systematic Investment Plans.

Systematic Investment Plan (SIP) allows investment in markets at regular intervals. A normal SIP invests once every month.
There are many online SIP Calculators available that can be used to calculate SIP amounts based on your financial goals.
 
SIP is fine…But how to put them on steroids?
Before we answer this question, we would quote an analysis from our previous post on Analysis of P/E Ratios of Indian Equity Markets. Our study suggested that whenever an investment is made with markets trading at a multiple of less than 15 (PE<15), returns over 3 and 5 years have been phenomenal.

Above data shows that on increasing our investment by 15.9% (Investing more when market is trading at lower valuations), our overall investment value increases by 25%.

So to summarize,

  • But even after discussing the benefits of regular investments in markets & redundancy trying to time the markets, if you want to time the markets by investing in direct stocks, you should stick to shares of large & stable companies (Read about how to find Large Caps selling at massive Discounts!)

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).