Sensex Growth Story

Now everybody is talking about US Financial Giants collapse and its possible impact to our Indian financial sector. Some one rightly said that, if US sneezes, rest of the world gets cold. In one sense, no country is fully coupled or decoupled. So not only US, if any major developed country sneezes, rest of the world will get cold in one or the other way.

But now the question is not about US!!! I am talking about how much it might affect our financial sector, particularly STOCK MARKET. Many people are saying many things about the market, its support level and resistance levels. But according to me these support and resistance levels are purely subjective and perspective things with respect to time. So here I am not predicting market direction, but I am saying the Indian stock market has seen many obstacles like this and overcome successfully. For this I would like take you through the growth story of the SENSEX from 1991. You guys might ask why 1991? As you all know that from that year only India opened its borders in the form of Liberalization, Privatization and Globalization (LPG). So let’s start…

On January 2, 1991, the Sensex was trading at 999 points. Five years later, on January 1, 1996 the same Sensex was trading at 3,128 points, a gain of 213 per cent in jus five years. But what do think, in those five year period Sensex has not met any obstacles or what? Just try to recollect, you people might have read somewhere!!! Yes you are right, the biggest scam of Indian stock market happened in this period only.

This period was marked by one of the many turbulent periods in the history of the Indian stock markets as the Harshad Mehta scam broke out on April 23, 1992 and ordinary investors bore the brunt of it. Millions of rupees of investors' money were wiped out in the selling frenzy and BSE Sensex fell 12.78 per cent, between two trading sessions. But our markets came over that hurdle successfully as our then Finance Minister and Present Prime Minister Mr. Manmohan Singh said “No power on earth can stop an idea whose time has come” and gave 213% in 5 years.

And from 1996 to 2006 market moved slowly from 3000 odd levels to 9000 odd levels. You might think this not very good return as compared to first part (91 to 96) or banks. But think about the

 East Asian Currency Crisis (posted in previous blogs),

 Dot Com bubble burst,

 Ketan Mehta scam and

 9/11 bombings.


And also due to rally from 91 to 96 there will be some profit booking and bear phase. Even after suffering so many jolts our Market stood and gave nearly 200% returns.

From 9390 on January 1, 2006 the BSE Sensex rocketed to 20,300 points in just about 24 months. In percentage terms, this comes to about 116 per cent, just about half of the percentage returns gained during the mind boggling period from 1991 to 1996.

But, At 12,676 points as on close on July 15, 2008, the BSE Sensex has made investors poorer by 37 per cent. This is the two-year period when the sub prime skeletons tumbled out of the banks' and financial institutions' balance sheets into the global stock markets and into our lives and mounting losses.
Now, let's look at the bigger picture and understand how long-term investment is the best way of creating wealth for the future generations.

Compare the returns in absolute terms gained by any investor who'd stayed in the BSE Sensex from January 1, 1991 to January 1, 2006. The gains made in this period are a mind-boggling 840 per cent! 56 per cent a year.

The gains would again multiply manifold if I were to look at the period between January 1, 1991 and January 1, 2008. The returns then would be 1,932 per cent.

Bottom-line…

Intermediate turbulences -- be it the Harshad Mehta scam, the dot com bust, the Ketan Mehta scam or the more recent sub prime crisis -- come and go. Long term investments stay with you forever. So, if you have faith in long-term disciplined investing then go ahead, kiss the stock markets.


Keep reading…

Keep investing…


Reference…

Rediff