Continuing from where we left in the previous blog. In the long-term, if we analyze the statistics of Sensex and Nifty, we find that if we invest in the share market for the long-term then we can earn good returns there. But if you wish to invest for the long-term by looking at the statistics of the Index then you are supposed to know the five important facts about it. Let us see what these five facts are:
The first fact is that Sensex was launched in January 1986 and it was considered that suppose if Sensex was established in 1979 then what would be its value? So 1979 was considered as Sensex’s base year and 100 was considered its base value. So if we observe the chart of Sensex then we find that Sensex has jumped from 100 to 50,000 mark from 1979 to 2021. Now, if we calculate the value of Sensex from January 1986 when it was originally established till January 2021, then it has jumped from 549 (in 1986) to 50,000 in (2021). So if you are thinking of entering the market just by thinking that the Sensex has jumped from 549 to 50,000 so you can also earn huge returns easily then you might just make a mistake there because even though Sensex has jumped from 549 to 50,000, it has been a roller-coaster journey and not a joy ride. While the Sensex is on a roller-coaster ride, you never know when it will go down. So if you wish to earn good returns via investing for the long-term then patience plays a key role there.
Let us talk about the second fact. When a company decides to share a part of its profit with its investors then that is known as a dividend. Consider, we had purchased the share of the company XYZ limited at Rs. 100 and sold it after 2 years at Rs. 200, so we are earning a profit of Rs. 100 here. But if the company had declared a dividend of Rs. 10 while we had hold-onto this share then our total profit would’ve been Rs. 110.
Also, if we analyze the available statistics, then Nifty was at 1200 in 1999, currently, in 2021 it has reached the mark of 14,000. If we had hold-onto and re-invested the dividend received out of 50 companies in Nifty from 1999 till 2021then we would’ve been earning good returns from it as the Nifty’s Total Return Index has reached the mark of 20,000 in January 2021. If you plan to invest for the long-term in the market then along with the increase in the price of the shares, the dividend should also be considered. You can check out the Nifty’s Total Return Index Values on the NSE website.
The third fact is if you invest in Nifty for the next 3 years expecting it to perform similar to its past 3 yearsʹ performance, then you might make a huge blunder. If you analyze Nifty’s previous one year, three years, five years, ten years, or even twenty years returns then you will find that Nifty has given different returns in different time-frames. So you shouldn’t plan for future returns based upon Nifty’s past performance. The returns given by the market are highly dependent upon the market valuation.
The fourth fact is about price and value. The Legendary Investor Warren Buffet quotes, ‘Price is what you get. Value is what you get.’ Your returns depend on the valuation at which you invest. The American-British Economist Benjamin Graham quotes, “In the short-run, the market is like a voting machine but in the long run it is a weighing machine.” The increase in the earnings of the company leads to an increase in its share price over a course of time. But in the short-term, just a small increase in the company’s earnings can lead to a significant rise in the price of its share due to investor sentiment. Due to sentiments, the share price can also be blown out of proportion at times. Similarly, due to negative sentiments, the share price of good companies may also fall significantly even though they have strong fundamentals. In this regard, American-British Economist Benjamin Graham has said that sentiments may drive the market either to a higher valuation or a lower valuation.
In January 2008 the Sensex was at the mark of 21,000 and the market valuation was higher at that time. Now, in January 2021 the Sensex has reached the mark of 50,000 while the market valuation is also high. If we analyze the data from January 2008 to January 2021, price-wise Sensex has increased from 21,000 to 50,000. That means price-wise, the value of Sensex has doubled. Now, instead of January 2008, if we analyze the data of Sensex from October 2008 then at that time Sensex was at the mark of 8,000 while the market valuation was inexpensive at that time. So if we analyze the data from October 2008 to January 2021, then we find that Sensex has increased from the mark of 8,000 to 50,000 giving more than 5 times returns over this period.
Talking about January 2020, Sensex was at 41,000 and the market valuation was higher at that time. Recently, in January 2021 Sensex reached the mark of 50,000 indicating that the market generated returns of almost 21% during this period. If we analyze the data from March 2020 till January 2021, the Sensex was at the mark of 25,000 in March 2020 and market valuation was moderate while in January 2021, the Sensex had reached the mark of 50,000. That simply means from March 2020 to January 2021, the market nearly doubled. All this is a gameplay of price and value. The returns generated mostly depend at what valuation you invest.
When the market valuation is expensive and when it is not, we have already discussed in our previous blog. Do check it out. If you wish to regularly check whether the market valuation is expensive or not then you can go to our app Aryaamoney. There we regularly update whether the market valuation is expensive or not and accordingly you can plan to invest in the market. And if you wish to learn how to invest in the market according to the valuation then you can subscribe to our Smart Trader Training Program, if you wish to you can subscribe to it as well. If you wish to open your Demat account with India’s leading brokers, then you can check out the link given below.
The fifth important fact is if we analyze the data of developed countries then we find that the American share market has recorded a huge crash in 1929 and the peak which the market had recorded early in 1929, after the crash the American market was unable to reach the same peak for a long-time. The American market had gone into consolidation from 1937 for a long period. That means the share market can go into consolidation at any given point in time.
If we analyze the share market data of Japan, we find that from 1978 till 1989 Japan’s share market had recorded very high growth. The peak which Japan’s market had reached in1989, the Japanese market has been unable to reach the same till 2021. So the Japanese market recorded a crash soon after 1989 and later it went into consolidation for a long period.
If we analyze the data of the Indian share market then we find that the Indian share market too has witnessed going into consolidation from 1991 to 2003. So when you plan to invest in Nifty or Sensex, remember the share market can go into consolidation for a long period at any given point in time.
The fluctuations taking place in the short-term are mainly caused due to emotions. In the long-run, the share market always follows the earnings of the company. We can proudly say that India is a growth story. In India, there are many companies where a high growth in their earnings is expected in the future. Seeing this golden future, how to invest in Sensex or Nifty as per the five important facts mentioned above? Let us find out.
The share market is a roller coaster ride, we never know when it is going to go down. So if you check the market valuation first and then plan to invest. When the Index (Senses & Nifty) as per the market valuation is expensive then invest less and when the Index (Senses & Nifty) as per the market valuation is in-expensive then invest more. That means create a pyramid of your investment. And if you don’t have the time to check the market valuation then the best possible option you should resort to is Systematic Investment Plan (SIP) in Low-Cost Index Fund. Index Fund is a type of Mutual Fund that invests in the companies included in Sensex & Nifty.
The benefit of a Systematic Investment Plan (SIP) is that if the market crashes after you invest so because you invest at regular intervals, you would get an average price of your investment and when the market goes above your average price, you start earning a profit. So in which Low-Cost Index Funds should you invest? We have provided the details below, if you wish to, you can invest in it.
In India, if we analyze the data of different asset classes, we find that just like the share market has given good returns in the long-run, similarly gold and silver too have given good returns in the long-run. Sometimes the share market goes up, other times gold and silver. In the long-run, if you are opting for a SIP then along with a Low-Cost Index Fund, you can also systematically invest in gold and silver. If we talk about the Low-Cost Index Fund i.e. Sensex Nifty Index Fund, then we find that these Low-Cost Index Funds have beaten most of the Mutual Funds. Now, which is the best Mutual Fund? We have already uploaded a blog on this topic, if you haven’t checked it yet, do check it out.
We would like to give a disclaimer here that all the advice given in this blog be it Index Fund or gold & silver is for educational purposes. You can go wrong anytime, otherwise, you would blame us. Mr. Bhuushan Godbole, his company as well as the director board of the company has crores of investment in the share market as well as in gold and silver. This is our disclaimer/disclosure. So we’d like to mention this again that invest in the market after thorough analysis and also after discussing it with your financial advisor.
We would like to mention a bonus fact here. You can buy Nifty (Index) in Future and Options as well. If the common investor trades in Future & Options without any purpose then he would neither have any future nor any option. In this regard, the Legendary Investor Warren Buffet quotes, “Derivatives are weapons of mass destruction.”
Thus, in this blog we learned what does Sensex & Nifty means, also we learned about six important facts about Sensex & Nifty. Also, we understood that if we invest in the market according to the market valuation, then we would be able to earn good returns there. But if we cannot invest as per the market valuation, then we can opt for SIP in Low-Cost Index Fund’s Direct-Growth Plan and earn good returns in the long-run. But while doing so, remember that the share market is like a roller coaster ride and you do not know when it will go down. Hence, when you begin with your SIP in Low-Cost Index Fund make sure you hold onto it with patience.
Until next time…
Happy Trading, Happy Investing!!!
Best Mutual Funds: Systematic Investment Plan (SIP)
Nifty Index Fund: UTI NIFTY Index Fund Direct-Growth (Minimum SIP Amount Rs.500)
Nifty Next 50 Index Fund: UTI Nifty Next 50 Index Fund Direct-Growth (Minimum SIP Amount Rs.500)
Gold Fund: ICICI Prudential Regular Gold Savings Fund FOF Direct-Growth (Min SIP Amount Rs.100)
Motilal Oswal S&P500 Index Fund Direct-Growth (Minimum SIP Amount Rs. 500)
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