Nifty 50 Index is composed of 50 of the 1600 companies traded on the NSE. The base date of the index is November 3, 1995 (1st anniversary of the NSE) & the ‘Base Value’ is 1000 with a ‘Base Capital’ of Rs. 2.06 trillion. The level of the Index reflects the total market value of all the stocks in the Index relative to the base period November 3, 1995. The index started trading in April 1996. From 2009, the index was created using the float-adjusted market capitalization-weighted method.

BSE Sensex price was 124.15 as on 3rd April 1979 (by back-calculation). Actual trading began only in 1986.

Nifty 50 Index – Financial Year Milestones

Date

Nifty 50

Yearly Gain %

31-03-1995	990.24	–
29-03-1996	985.30	-0.50%
31-03-1997	968.30	-1.73%
31-03-1998	1,116.90	15.35%
31-03-1999	1,078.05	-3.48%
31-03-2000	1,528.45	41.78%
30-03-2001	1,148.20	-24.88%
28-03-2002	1,129.55	-1.62%
31-03-2003	978.20	-13.40%
31-03-2004	1,771.90	81.14%
31-03-2005	2,035.65	14.89%
31-03-2006	3,402.55	67.15%
30-03-2007	3,821.55	12.31%
31-03-2008	4,734.50	23.89%
31-03-2009	3,020.95	-36.19%
31-03-2010	5,249.10	73.76%
31-03-2011	5,833.75	11.14%
30-03-2012	5,295.55	-9.23%
28-03-2013	5,682.55	7.31%
31-03-2014	6,704.20	17.98%
31-03-2015	8,491.00	26.65%
31-03-2016	7,738.40	-8.86%
31-03-2017	9,173.75	18.55%
28-03-2018	10,113.70	10.25%
29-03-2019	11,623.90	14.93%
31-03-2020	8,697.75	-25.17%
31-03-2021	14,690.70	68.90%
31-03-2022	17,464.75	18.88%
31-03-2023	17,359.75	-0.60%

Observations

(A) Stock market returns always get clumped.

Over last 28 financial years.

• Compounded Annual Growth Rate (CAGR) is 10.76%.
• Positive Annual Return – 15% or more – 11 Financial Years – Highest being 81.14%.
• Negative Annual Return – 15% or more – 3 Financial Years – Highest being 36.19%.

(B) There could be long waiting periods before big moves come. Do not discount the likelihood of extended non-performance when planning your finances.

• Nifty 50 went from base of 1000 on November 1995 to 978.20 on 31^st March 2003 >>> 8 years & CAGR of (-) 0.30%.
• Nifty 50 went from base of 8491 on 31^st March 2015 to 8697.75 on 31^st March 2020 >>> 5 years & CAGR of (+) 0.48%.

(C) Drawdown is the measure of the Nifty’s fall from an all-time high i.e., a fall of 5% from a peak is a 5% drawdown event. Historical data of Nifty 50 index suggests that

• for 38% of total trading days, it remained 20% below its all-time high.
• for 21% of the time, Nifty 50 index was in 30% drawdown territory.
• in 2 out of 3 instances, 5% fall from the high point, went on to become a 15% one.
• in 1 out of 4 cases, 5% drawdown developed into a 30% fall from peak.
• in 1 out of 2 cases, 15% drawdown extended its losses to 30%.

Given that markets are exhibiting great bullish fervor for over a year now without support of strong economic growth, it would be prudent to remind oneself that stagnancy, negative to poor ‘inflation-adjusted returns’ & deep drawdown are as much a fact of investment experience as have been a 10.76% CAGR of Nifty 50 index.

Stock Market history is replete with instances of a benchmark index peak going on to scale new highs. However, between the peaks could lie a deep valley &/or huge expanse of time, both of which could significantly pull down the compounded average.

Re-balancing the asset allocation helps reduce downside investment risk as well as imposes discipline to investor behavior.