De-compositing Market Returns

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NIFTY 50 index is National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market has delivered 11.24% CAGR since inception. So, while this statement is factually correct many believe that Nifty 50 will deliver 11.24% return year on year (which translates to roughly doubling your penny in 6.5 years’ time frame).

This is one of the biggest misconceptions which many investors have and which leads to disappointment and ultimately makes common investor lose money.

Nifty 50 was launched on April 1st 1996. We have broken down this time periods into smaller periods so as to gain some insights,


  • Firstly, despite having so many topsy-turvy events markets have delivered compounded return in excess of 11% in last 24 years.
  • As seen from the above chart, there are some periods where the Index has delivered massive returns (Recovery post 9/11, India Re-rating period 2004-2008) and some periods where Index have fallen drastically (Global Crisis of 2008, Chinese Economic slowdown).
  • Although, over a period of 24 years Nifty 50 has generated 11.24% CAGR, investors investing at different time frame have earned different returns. For e.g. someone who invested at the peak in 2008 have earned poor return of 5.68% (CAGR) in over 11-year period. On the other hand, if someone who have invested at the bottom of Tech Crash (September 2001) and stayed Invested till date earned a CAGR of 16%.
  • So, it is important from understand that markets work in a cyclical fashion, and knowing where you stand in the cycle is important for investing.
  • To get further insights, we calculated rolling 5-year CAGR returns on a daily basis for Nifty 50. Results are as follows,
  • Out of total 4843 reading (5 year rolling CAGR on daily basis) – on 26.42% of the times Nifty 50 delivered returns more than 15% (Which corresponds to 5-year doubling).
  • Similarly, Nifty delivered more than 8% return (Returns typically delivered by Debt Funds) ~60% of the time.
  • It is also important to note that, Nifty 50 delivered less than 4% return (Less than what saving bank offers) 23% of the times, and have delivered Negative returns on a 5-year period close to 8% of the times.

While investing in equities it is important to have patience and discipline, but it is equally important to have guidance from someone who has been active in equity markets, knows how it functions and can handhold you in testing times.

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