corrections in indian stock markets

A Brief History of Indian Stock Market Corrections

In the hindsight, when we look at the journey of SENSEX, we’ll find that it has been moving in an upward direction. From the base value of 100 in 1979, it took 39 years to touch a peak of 36,500 in 2018. Certainly, the rising index shows the strong economic growth of our country. But the journey has never been a smooth ride. It had its own episodes of ups and downs which led to many stock market corrections.

 

On a few occasions, it lost more than 50% of its worth. Whereas in many instances, it shed off around 20-30% of its value while reacting to the uncertainty in the domestic or global factors. At the same time, it has multiplied the investors’ wealth at a CAGR of 15% since inception and stood strong.

 

Let me give you a figure that should blow your mind. If you had invested Rs.1 Lakh at its inception and stayed the course without worrying much, it would have been worth Rs.2.32 Crore today. During its journey of 39 odd years, the ones who had the stomach to digest the repercussions of severe corrections and bear phases, would have reaped the extraordinary benefits.

 

Let’s take a look at the down phases of the index

 

I downloaded the month-wise historical data of the index from the BSE Website (since 1990) and collected the points where the market corrected mildly, healthily, severely and bearly during the period 1990-2018.

 

A Little History of Indian Stock Market Drawdowns

 

As per the statistics, there have been 3 instances (during Dot-Com Bubble as well as The 2008 Depression) when the index fell beyond 50%. This implies that once in 8 years, a severe bear market prevails. Moreover, the index witnessed 10 occurrences of healthy corrections when it lost its value between 10-20%. Besides, one can expect a mild correction in a span of 1 or 2 years. 

 

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We keep on fretting about the mood swings of the market and worry about losing our money during the drawdowns. What we fail to realize is that the market eventually recovers and touches the new peaks thereafter. What we fail to grasp is that these drawdowns are the best times when the stocks are available at discounts. Many investors get panic and stop their monthly SIPs but what they fail to comprehend is that the process of building wealth is purely related to how one reacts to such situations.

 

The purpose of this post is not to scare you from investing your hard-earned money in the market. The intent is to tell you that even after facing huge drawdowns, the Indian stock market never stopped touching new highs. Whether it happens in a year or decade, that’s purely a different topic of discussion. Even Warren Buffett faced such tumultuous times while managing Berkshire Hathaway and yet he managed to build a personal fortune of $73 Billion. It’s not because he is equipped with high IQ. It’s because he has the stomach to digest such drawdowns in the market.

 

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The subject of this post has been inspired by the post authored by Ben Carlson, A Wealth of Common Sense

PS: The cover image has been taken from Trump Dump

 

 

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2 Comments

  • Jaswant Aditya Singh

    July 15, 2018

    The widly spread assumption that if one had invested at 100 sensex is erroneous , because there was no existence of index funds that time in India. True picture can be seen if it is considered after 1991 from when SEBI ,NSE, NSDL, CDSL ,online systems , regulatory reforms, Technology , foreign participants came into existence.
    Moreover in the last decades the efficiency of market has drastically improved in comparison to pre 2000 era. I. Hindsight the discussed strategy is looking fabulous.
    Although there is no denying the fact that indexing can relatively provide safer and predictable returns.

    Reply
  • Jan

    July 15, 2018

    hey man
    for me it was a game changer when I found Rockwall and started investing with them
    my passive income started to grow much faster than before
    I’m really happy with me results and I’m so excited, because I know my passive income will increase every day (by contrast to fixed salary)
    http://janzac.com/how-to-earn-money-with-rockwall-investments/#my_rockwall_results

    wish you the best man. good luck!

    Reply

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