It’s happened. The Sensex has hit the big milestone of 50,000 points today, 21 January 2021. The Indian stock market, filled with money of global and domestic investors is celebrating the reviving economy, the vaccine roll-out and the big-bang budget signals coming from North Block. It can be said, the market is celebrating the re-rating of India in the minds of the world.
While I celebrate this milestone, I must tell you the stories of earlier milestones and how they were irrelevant as signals to investors to either enter or exit the stock market. My first job, in a business magazine, in Autumn of 1991 coincided with the Indian economic reforms and a big bull run on the Indian stock market. Markets doubled over the year and then doubled again in the next six months hitting almost 5,000 in April 1992. I remember hearing as a cub reporter: “how high will it go? This is a scam!” And it was. This unreal quadrupling of the market over under two years was based on loopholes in the Indian banking system that were used by operators to inflate stock prices. The subsequent crash lasted the full decade, all the way to the new millinium.
The 1990s saw the economic reforms settle down into some real on-ground economic changes. They also saw the birth of a new regulatory system for the Indian stock markets. The crisis was used to bring transparency, order and rules of the game to the wild west that used to be the Indian stock market. The creation of the National Stock Exchange that used screen-based trading instead of the open outcry system and the setting up of Sebi as the market regulator, depositories, settlement guarantees funds and a big infra upgrade gave the Indian markets a very strong foundation.
It took till September 2005 for the markets to double again, when they hit the 8,000 mark. Then another five months to breach the psychologically significant 10,000 point. I remember the party hats, the balloons and the cakes in TV studios as the Sensex party pointed to reflected a strong economy and growth ahead. I remember the wife of a stock market investor asking me wide-eyed – how high will this market go? I hear it will go to, gasp, 12,000! I remember telling her – your husband needs to diversify his risk – at 60 he is over-invested in direct stocks. At 12,000 investors thought they had missed the bus. That the markets were “too high”.
It took just another year and two months to zoom past 12k to rest at 15,000. And then six months later to fly to 20,000 in December 2007. This was just before the North Atlantic Financial Crisis of 2008. This was the era of the Greenspan put – the easy money unleashed on the world by the Ayn Rand acolyte who himself later admitted to holding policy rates too low for too long. I remember reading full page articles over 2007 and halfway to 2008 in respected US and UK newspapers as they told us that money managers had taken risk and “ground it into tiny particles”. They said the world was risk-free. They said, this time it is different. And of course, it was not. As the world discovered garbage in the triple A rated bonds made of securitized retail loans, the contagion threatened to grind the wheels of the global economy to a standstill.
FD investors finally tired of their risk-averseness, threw caution to the winds and rushed headlong to the market to get rich quick. But they saw their wealth shave off more than half its value over the next year as the index went into a free-fall to touch 9,800 in October 2008. Retail investors historically bought when the market had nothing but steam and kept holding the collapsed balloon, hoping for a reflation and getting back to the buying prices of the dud stocks they owned.
But as the market digested the news that India had largely been isolated from the toxic products, other than a few high-profile private banks, markets took two years to recover to the 20,000 mark in January 2013.
At 20,000, the question I was asked was again the same: “how high will this market go? I am too late to invest. This train has left the station”. It took another year and a half for markets to touch 25,000 as the Narendra Modi government took over the reins from a deeply corrupt and stagnant UPA II. The next milestone waited for NDA II, and that is when the Sensex hit 40,000 in mid 2019. Then came the Covid lock-down in March 2020 making the market slump all the way down to just over 26,000 – a heart-stopping drop over a week. The stock market nay-sayers got active again and told stories of how they have been right all along and the Indian stock market is a scam. How gold is the only safe spot. How people have got ruined by advice of people like me – who advocate an asset allocation route to building a mutual fund portfolio that has both equities and bonds. But the Indian retail investors had mostly learnt their lessons from the past crashes and used the opportunity to buy more. The market took just seven months to recover to the 40k mark. And two months later in December 2020 hit 45,000.
As we stand at 50,000 Sensex, the only learning is this: celebrate the milestones, but then ignore the Sensex when you invest. Investors along the ride that I have myself taken, from Sensex 1,800 to Sensex 50,000 over a 30-year period, have said the same thing: “how high will it go and I am too late to invest”. What they failed to understand that the Sensex is just reflecting the underlying growth of the Indian economy. It may crash from 50,000 in the next few months. But if you have used the rising markets to rebalance your portfolio – you are doing just fine. For those on the sidelines – please don’t rush in with all your money when markets are breaching an all-time high. Make a plan. Invest according to that. Then forget Sensex values.
Monika writes on household finance, policy and regulation.
Monika Halan's blog 
