Tracking the long-term investment journey of the Indian markets

The Nifty and Sensex fell more than 1,300 and 4,300 points, respectively, or almost 6% yesterday. The last time an election had such a strong impact was in 2004, when unexpected market results led to an approximately 8% market correction on the day results were declared.

This is just another speed bump in the growth trajectory of Indian markets. Since 2004 (after the NDA unexpectedly lost), markets have returned 13.9% CAGR till June 3, 2024.

Focus on the long-term growth story

As we show in the chart below, despite multiple challenges in the past - going back as much as the 1990s, enquiry markets have always bounced back. Despite challenges and black swan events like Dot com bubble, Global Financial Crisis, Covid-19 and the recent global skirmishes (Russia, Israel), the Indian stock market has delivered a CAGR of around 14% over the past 33 years (approximately).

Trajectory of the SENSEX over the past 33+ years

Source: Bloomberg; News articles; *events point to the year when they occurred

Temporary falls are common

In the chart below, we show the maximum fall in a particular year (red bar) and also the Sensex's returns in that year (the blue bar). So for instance, in 2022 - maximum market fall (over a certain period of time) was around 12%, but the markets still delivered positive 4% returns over the entire calendar year.

Over the past 15 years (2009 - 2023)

• An average fall of around 14% has been seen in each of the years
• Sensex has ended negative in only 2 years
• Average Sensex returns have been around 15% per annum

Sensex drawdown and returns in each calendar year

Source: BSE, FundsIndia; *2023 is till April. Full year sensex returns were approximately 20% in 2023

But the long-term story remains intact. Despite all the challenges highlighted above, India has seen many multi-baggers, with over 50% of NSE 500 stocks generating more than 10x returns within a 5-year rolling period since 2000.

Multi-baggers across major economies

Source: Edelweiss Mutual Fund

Conclusion:

Investors should focus on the long term growth story, not on short term volatility. Markets have seen and overcome multiple challenges in the past and will continue to do so. Can there be some short term correction? Not for us to speculate. But for a long term investor, it would be a buying opportunity and not a panic situation.