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What does Sensex at 50000 Mean – Reasons, Factors & Challenges for Investors

The message that investors can take away from the Sensex journey of 100 to 50,000 is that long-term investing creates wealth.

(Source: BSE India Twitter handle @BSEIndia

What does Sensex at 50,000 mean??

The Sensex is an index representing 30 underlying companies that form a part of the index. The Sensex index was launched in 1986 with a base value of 100. With the growth in the profits of the companies that are a part of the Sensex index, the share prices and the market capitalisation of these companies started going up over time. As the market capitalisation grew, so did the levels of the Sensex. Over time, the Sensex level kept rising from 100, crossing one milestone after another, eventually reaching 50,000. This article explores what Sensex touches 50000 means.

In short, the Sensex rising from 100 to 50,000 represents the tremendous growth of the underlying companies that are a part of the index. If an investor would have invested a lumpsum amount in Sensex companies when Sensex was at 100 and stayed invested till it reached 50,000, he/she would have multiplied his/her wealth by a mind-boggling 500 times! It will take some time for the thought of multiplying wealth by 500 times in less than 40 years to sink in.

Factors that lead to Sensex going up from 100 to 50,000

  • Liberalisation of the economy: Since the time Sensex was launched, the Indian economy has come a long way. The watershed moment was the 1991 Budget presented by the then Finance Minister Manmohan Singh. India embraced liberalisation by introducing reforms. Over time, sectors like banking, insurance, capital markets, and many others were opened up to private and foreign participation. A lot of public sector units have been divested to private players. These reforms helped in improving productivity along with the efficiency of corporate India. All this has led to tremendous profit growth of Sensex companies, thus taking the Sensex index to higher levels over time.
  • Capital market reforms: Since 1990, a lot of reforms have been introduced in the capital markets. Some of these include setting up SEBI (capital markets regulator), allowing private companies to set up mutual funds thus breaking the monopoly of UTI, opening up of Indian capital markets to investment from foreign institutional investors (FIIs), dematerialisation and electronic trading, etc. All these reforms along with huge capital inflows from FIIs have provided a huge boost to capital markets doing well thus contributing to the rise of the Sensex.
  • Ease of doing business: The Government did not just allow private corporations to set up the business, but also created an enabling environment for them to continue doing business with ease. Some of the measures on this front include ending licence raj, reducing the permissions required, single-window clearance, labour reforms, adoption of GST, digitisation of a lot of processes, etc. All these measures of “Minimum Government, and Maximum Governance” have helped corporations survive and thrive, thus boosting the Sensex.

Sensex conquers all challenges in its journey to 50,000

From the start of 1990 and ahead, we saw liberalisation, reforms, and ease of doing business. All these measures certainly helped, but the Sensex journey from 1000 to 50,000 was certainly not a cakewalk by any means. There were several challenges in the way from 1990 to 2021.

Some of these include the Harshad Mehta Scam (1992), Asian Financial Crisis (1996-97), Kargil War (1999), Dot-com bubble burst (2000), terrorist attack on the World Trade Center (2001), NDA Government fall (2004), sub-prime crisis (2008), Oil price rise (2011), European debt crisis (2012), demonetisation (2016), Covid-19 (2020), etc. Each of these big events led to a big fall in the Sensex.

Every couple of years, there was a new big shock for the Sensex and markets overall. With every shock, the markets pulled back, although temporarily. But, after some consolidation, the markets not only absorbed a lot of shocks, but bounced back with an even higher force and not just conquered previous highs, but went on to make new highs, milestone after milestone.

(Source: BSE India Twitter handle @BSEIndia)

The above chart represents the dream run of the Sensex from 100 to 50,000 capturing some of the biggest rises and falls in the Sensex during this dream run. Although there were many challenges in the way, Sensex conquered them all and rewarded its investors for staying invested.

Sensex 50,000: Message to investors

The Sensex at the 50,000 level is sending a very clear message to investors. Those who invested through regular SIP with discipline and waited patiently for their money to grow benefitted from the power of compounding. The message that investors can take away from the Sensex journey of 100 to 50,000 is that you should do goal planning, risk assessment, asset allocation, and invest for the long-term to create wealth.

In 1990, the Sensex hit the four-digit mark of 1000. In the next 30 years, it grew 50 times to reach 50,000, growing at a CAGR of around 14%. If someone invested Rs. 1,20,000 per annum (Rs. 10,000 per month) in Sensex companies during these 30 years, his/her total investment of Rs. 36 lakhs would be worth a huge Rs. 4.88 crores growing at a CAGR of 14%. Thus, it makes sense to invest regularly through systematic investment plan (SIP) mode in an index fund with the Sensex as an underlying to benefit from the next phase of the Sensex growth journey from 50,000 to 1,00,000 in the times to come.

Sensex scales Mount 50K in January 2021

In March 2020, the Covid-19 virus started spreading in India, leading to the Central Government announcing a countrywide lockdown. This sent shivers down the stock markets, leading to a brutal sell-off and the Sensex falling all the way down to levels of around 25,000. At that time, no one, even in the wildest of their dreams would have thought that in less than a year, the Sensex would double from there to reach levels of 50,000. But, in the second half of 2020, the market surprised everybody by recovering all its early losses and going on to make new highs, and finally hitting the magic figure of 50,000 on 21st January  . If someone says: “The year 2020 was volatile for capital markets”, it would be a big understatement!

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