On April 01st, the Sensex completed a full 40 years of existence. Over the last 40 years, nothing has captured the sentiments of the market and the undertone of economic shifts better than the Sensex. Like most indices, the Sensex has been a powerful lead indicator of the Indian economy. The Sensex, which was launched in 1979 with a value of 100, is worth 39,000 today. That speaks a lot!
Why 1979 was a great time
In a way, the Sensex was lucky to have started in 1979. It was a time of global flux and most of them favored equities as an asset class. China was just embarking on liberalization under Deng and Russia had invaded Afghanistan. Neighboring Pakistan had just seen the execution of Bhutto and the Iran Revolution was gathering steam. It would lead to the deposition of the Shah and installation of an Islamic regime. It was still 10 years before communism began to implode, but the rumblings were visible back in 1979. The focus of Middle East oil economics was changing and the US was getting closer to the Saudi Kingdom, a far cry from the Oil Embargo of 1973. But above all gold was nearing its peak after a frenetic 8 year rally which had taken the price of gold from $30/oz to $920/oz. In fact, by the time India ushered reforms, Sensex was already a 10-bagger and had turned in a 45-bagger by the time the Harshad Mehta scam broke in 1992.
Reflecting economic shifts
Above all, the Sensex has highlighted the shifts in the structure of the Indian economy over the last 40 years. Only 10 of the original Sensex companies still remain in the index. The 1979 Sensex did not have a single financial company; which today accounts for 36% of the index. Information technology, another big story of the last 30 years, was non-existent in the Sensex back in 1979. If you look at the 3 most valuable companies in the Sensex today, only Reliance was listed. HDFC Bank was formed much later and TCS was still an unlisted unit of Tata Sons. In terms of sectoral mix, Sensex used to be dominated by textiles, metals and engineering. Most of these sectors hardly exist in the Sensex today. In a way, the Sensex is the best reflection of the shift from a hard power to a soft power; that India has exhibited.
Above all, an equity story
But the biggest message from the Sensex @ 40 is that equity continues to be the best asset class for long term wealth creation. An investment of Rs.1 lakh in the Sensex in 1979 would be worth Rs.3.90 crore today. That is 17% CAGR without dividends and 18.5% with dividends. If ever one needed evidence that even passive equity investments can generate wealth in the long run, just look at the Sensex. That is the big take-away from Sensex @ 40! ©