Back in 1979, India had not heard of mobile phones or the internet; two things without which trading in the markets is hard to imagine today. In 1979, the Cold War was still on between the US and the USSR (that is what Russia and adjoining nations were called) and India was closely allied to the USSR. When the Sensex was launched in 1979, India was under the first non-Congress government led by the Janata Party. Sensex rallied in the last few weeks after the prospects of the BJP improved but when the Sensex was constituted in 1979, the BJP did not exist. The Bharatiya Janata Party was formed only in 1980.
Key milestones for the Sensex
While the Sensex was constituted with a notional value of 100 in April 1979, the lowest point recorded was 113.28 in December 1979. It took the Sensex nearly 11 years to touch the 1,000 mark in 1990. From that point, it took the Sensex 16 years to reach the 10,000 mark but a little over a year to touch the 20,000 mark by late 2007. Interestingly, in the last 12 years since the end of the bull rally in January 2008, the Sensex has not even doubled; an annualized return of less than 6% over the last 12 years. During the last 40 years of its existence, the Sensex has seen three massive bull market rallies led by specific sectors. The 1992 rally was led by cement, the 1999 rally by technology stocks and the 2007 rally was led by infrastructure and realty stocks.
How the constituents of the Sensex have changed over the years
When it comes to the constituents of the Sensex, a few things stand out about the shift.
- Just about 10 stocks that were part of the original Sensex of 1979 continue to remain in the Sensex today.
- When the Sensex was constituted in 1979, the Tatas and Birlas accounted for 9 out of the 30 companies.
- Back in 1979, there was not a single financial company or IT company (what was that) in the Sensex. Today, financials and IT account for close to 50% of the Sensex in terms of weightage in the Sensex.
- Tata Motors is the only stock that had its main stock and its DVR listed as separate components of the Sensex for a brief period. Currently, only the Tata Motors stock is part of the Sensex, not the DVR.
Sensex is all about passive wealth creation
Sensex represents approximately 40% of the overall market cap of Indian stock markets, which is what makes it a good barometer of the overall market. But the real take-away from the Sensex is its passive wealth creation potential. For example, if you had invested Rs1 lakh in a Sensex Fund in 1979, you would be sitting on a cool Rs3.90 cr today. That is an approximate 390-bagger for the Sensex over 40 years. In annualized CAGR terms it translates into 17% compounded returns over 40 years. Of course, if you add the dividend yield, it could be closer to 18.5%. Therein, probably, lives the story of wealth creation by the Sensex.