Chart: The Great Indian Stock Market Story was only 5 good years

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The Great Indian Stock Market Story of the last twenty years is only about four years, 2003-2007. If you’re finicky, we could add the stellar 1991-92 time when Harshad Mehta pushed the market up 3x in one year and say this: Just five years of the last twenty two have accounted for nearly all of stock market returns.

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Don’t listen to people who tell you that stocks are the best thing ever. If you were 50 in 1991 and you put your money into stocks, you made less money with stocks than by putting money in long term bonds. (I have some that have yielded 16% since 1997!) In fact the market, in September 2001 was just about 49% higher than September 1991, a compounded return that would give you less than a savings bank account deposit (not accounting for dividends or tax of course)

Even the last five years have seen a problem. From 2007 to now, the total market return is a miserable 5.9% per year.

Nearly all of the growth in India’s markets were between 2003 and end 2007.

If you remove this period from the market, the rest has given substandard returns. Of course individual stocks have given great returns. But if you weren’t part of the great part of the story, you probably don’t like the markets too much.

I’m not even sure what my point is, but I think this graph shows you that timing and stock picking can have an advantage over indexed investing. I know this sounds ridiculous to the investor who thinks markets are rational, but you have to find evidence that goes against your thinking.

Thanks to @b50 for showing me a graph that said bank FDs have beaten equities over 20 years. Of course some of it may be cherry picking, and we can refute that forever, but there is really no reason to think that FDs can’t beat stocks in the long term. After all, an FD at 8% in 2007 would have beaten stocks to date, and five years is long-term in most investors’ books.

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13 COMMENTS

  1. This article point came in ET also.
    Would hep if you has a similar chart for US.

    How could brokers and MFs sell their products with this performance? Would have to be a genius to palm this to the public ! ! !

  2. Deepak,

    It is all about period you select. You have chosen period which covers last secular bear market. Sensex was established in 1979 at 100. In 1992, at peak of Harshad Mehta bull market, it was around 4500. That is 45 times in 13 years!! But, in 2003, it bottomed at around 3000. That is 33% down in 11 years!! So, everything in number game depends on what you select. If you select period from 1979 then Sensex has returned around 16% pa compounded for 32 years!! And I am not counting dividends!! Surely, it is some returns!!. I will not bet on FD to beat such returns!!

    • BUt check gold last 100 years consider that.. see what 1 re can buy u today than it did in 1979… sir we indians are kinda foolish .. ek ke sath ek free toh khush

      IT is not inflation it is hyperinflation ..ONCe the faith goes forget sensex we get back to barter system

      1980 was the start of global growth engine of FIAT based currencies.If u still say great value i really feel sorry .Sky looks good from 5000 feet the moment the building shakes the foundation .

  3. Timing makes the difference, during the period 2003-2007 “anyone” was making money irrespective of the market understanding, however if you know how to use timing for your advantage and which financial instruments can work in what type of market then you can make a substantial difference….

    Timing + right financial instrument (stocks vs bonds) + good entry/exit strategy = financial success

  4. Looks like these posts are for larger propaganda of selling your book :P I am kidding

    Yeah it might be golden years but what makes you thinking its never going to happen again?

  5. Does this not point to a “Permanent Portfolio” type of philosophy of investing? Have a mix of long term bonds, cash, gold and equity as asset classes and rebalance every year?

  6. This is useful information but somehow I feel this to be half backed. Debt products delivering more returns than equity products is a violation of fundamentals of capitalistic system. If all of us start FD’s and no one willing to run business, banks will soon charge to keep your money safe and forget about any interest.

    from a finance standpoint, you are saying that ERP (equity risk premium) is negative. I havent done much research on India but I can say that for a developed market like US, ERP is definitely positive. this article by aswath damodaran (http://www.aswathdamodaran.blogspot.com/2012/03/equity-risk-premiums-2012-edition.html) is a must read in this context.

    Do you have data for longer horizon for India..if true then am sure it needs to be researched and most likely candidates would be shallower capital markets or market distorting government policies.

  7. Great piece of information. For a small investor, looks to me that RD rather than SIP of MF. Seems everything goes through cycles. PPF/NSC/POMIS are turning to be favorites. Sorry, the party was spoiled for PPF last month.

    I am not sure of the reason, but since a year or two, people started to prefer govt jobs albeit low pay, limited career growth, less excitement. Even the PSU stocks like CIL have created more buzz than any other stock in recent times. The charm of private business, banking and employment is slowly waning.

  8. bank FDRs/ TDRs are always pre-tax in India. Even in r/o Corporate FDs, tax will be deducted as TDS or it could be taxable afterwards. There will be TDS of Income Tax in r/o Interest beyond certain amount of Interest in r/o bank deposits. This TDS could also be avoided if the person’s Income is not taxable. He could submit Form 15H or 15G (In duplicate) (as the case may be) to the bank concerned. To avoid TDS in r/o Interest on bank-deposits, one could legally avoid by spreading his deposits into several banks and several branches. There will no TDS in r/o Interest on FD in the Post Office.

    2.) I am a retired Chief Manager in one of the PSU banks in India.

  9. All i could say is FDs are for those who don’t want to take any risk. Invest and forget types. whereas stock markets requires one to be active followers. Long term investing doesn’t really mean that one buys a good stock for 3 or 5 years holding and then forgets it. It really means making entries and exits several times during that period and at the right times.

  10. 1980 dow was 1000 it has gone up what 16 times but u will argue sensex was 100 in 1980

    yea but 1 dollor = 5 or 7 bucks today 66

    world is getting into printing big time

    in the last 50 years i think indian population has gone up 3x what has changed…ANSWER printing money all over the world

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