The Sensex conquered the 30,000 mark this April and has been continuously trading above it for the past three-and-a-half months since then, touching new highs. Indeed, the market has been rising since February last year and has grown over 25 per cent from that time. The bull phase is expected to continue further.
This enthusiasm, however, has not translated into equally splendid returns, in particular for long-term investors, based on rolling returns.
On what basis is this assertion being made? The graph alongside shows the compounded annual growth rate (CAGR) on investments made each trading day starting November 1, 1988, up to August 25, 2007 and withdrawn exactly 10 years later - that is, 10-year annualised returns on each day from October 31, 1998, to August 24, 2017. The average CAGR during the current bull run is a mere 8.3 per cent, well below the average returns during some of the previous bull-run phases.
The average 10-year return in the last bull phase between December 2011 and January 2015 was around 17.4 per cent. Two other bull runs of 2000 and 2010 also generously rewarded long-term investors with almost 14 per cent and 19 per cent returns over 10 years. The only bull market phase when returns were in single digits earlier was between 2003 and 2008 which gave an average return of 9.4 per cent on a rolling basis, but even this was higher than the returns during the current phase.
Why have long-term investors not been handsomely rewarded this time? "There could be multiple factors responsible," says Mustafa Nadeem, CEO of market research firm Epic Research. "First, there are the structural changes that this bull market has witnessed, specifically in the last couple of years. Developments like banking sector reforms and the banks' non-performing assets (NPA) crisis, the demonetisation effort, the implementation of the Goods and Services Tax (GST), etc., have all been part of this process. Markets have discounted multiple structural changes, despite the fact that many sector valuations are 20 per cent above their 10-year averages."
Nadeem believes the present structure is more of a baseline which can spur the market towards new all time highs in coming years.