Valuers and Analysts often need to evaluate the BSE Sensex return for a variety of reasons. From assessing their portfolio returns to assessing the Market Rate of Return while assessing the Cost of Equity under Capital Asset Pricing Model (CAPM) among others. Here is how Sensex has performed over the years since it started.
| Date | Sensex | Annual Return | . | Date | Sensex | Annual Return |
|---|---|---|---|---|---|---|
| 1979 | 100 | 2001 | 3,604 | -27.9% | ||
| 1980 | 129 | 28.6% | 2002 | 3,469 | -3.8% | |
| 1981 | 173 | 34.9% | 2003 | 3,049 | -12.1% | |
| 1982 | 218 | 25.5% | 2004 | 5,591 | 83.4% | |
| 1983 | 212 | -2.9% | 2005 | 6,493 | 16.1% | |
| 1984 | 245 | 16.0% | 2006 | 11,280 | 73.7% | |
| 1985 | 354 | 44.2% | 2007 | 13,073 | 15.9% | |
| 1986 | 574 | 62.2% | 2008 | 15,644 | 19.7% | |
| 1987 | 510 | -11.1% | 2009 | 9,709 | -37.9% | |
| 1988 | 398 | -21.9% | 2010 | 17,528 | 80.5% | |
| 1989 | 714 | 79.1% | 2011 | 19,445 | 10.9% | |
| 1990 | 781 | 9.5% | 2012 | 17,404 | -10.5% | |
| 1991 | 1,168 | 49.5% | 2013 | 18,836 | 8.2% | |
| 1992 | 4,285 | 266.9% | 2014 | 22,386 | 18.8% | |
| 1993 | 2,281 | -46.8% | 2015 | 27,957 | 24.9% | |
| 1994 | 3,779 | 65.7% | 2016 | 25,342 | -9.4% | |
| 1995 | 3,261 | -13.7% | 2017 | 29,621 | 16.9% | |
| 1996 | 3,367 | 3.2% | 2018 | 32,969 | 11.3% | |
| 1997 | 3,361 | -0.2% | 2019 | 38,673 | 17.3% | |
| 1998 | 3,893 | 15.8% | 2020 | 29,468 | -23.8% | |
| 1999 | 3,740 | -3.9% | 2021 | 49,509 | 68.0% | |
| 2000 | 5,001 | 33.7% |
Since we usually refer to a longer term rate, we may either use the Average of Annual Return which would take into account the fluctuations during the period. Alternatively, we may use the Compounded Annual Growth Rate (CAGR) which does not consider the fluctuations during the period. However, the values under both the methods may be very different.
Given below are the Returns from Sensex using both the approaches. It is clear that returns from the market in the shorter periods have been lower than in the longer period.
| Sensex Period | Annual Return | CAGR Return |
|---|---|---|
| Average (1979 to 2021) | 23.2% | 15.9% |
| Average (1991 – 2021) | 22.0% | 13.3% |
| Average (2001 – 2021) | 18.4% | 14.0% |
| Average (2011 – 2021) | 12.2% | 9.8% |
While the above analysis was done primarily based on Sensex values as at year end. We also checked if the returns would be any diferent on other parts of the year. Analysis daily Sensex values between 2008 and 2021, the 1 year moving average return from Sensex between Jan-2008 and Mar-2021 has been 11.06 percent.
While the Jury is still out on what should be the long term Market Rate of Return, we believe that there should be two major variables that should be considered to estimate Market Return. First, the average annual return between 2021 and 2012 i.e. 10 years may be a very close approximation. Based on our calculations, this value comes to 12.2 percent. Second, and more important approach could be to look at daily Sensex values over the same period. For the period 1st April, 2012 to 31st March 2021, the 1-year moving average based on daily Sensex values for last 10 years was 10.7 percent. In our view, this could be the most appropriate value of long term market return if Sensex is considered as a benchmark.