Thread by @nooreshtech

#Sensex touches 39000 and you get up reading up on how it has given a CAGR of 16% for 40 years. I do believe Equity is the asset class which can beat Inflation but the 16% cagr and the data is erroneous on different levels.Read the next few tweets.

From this article by @Moneylifers - business-standard.com/article/opinio… 1) The Bombay Stock Exchange launched the Sensex in 1986. But it has calculated the Sensex data since April 1979 to provide a longer series, with a base index value of 100.

2) The Sensex value as on April 3, 1979, was 124.15 and not 100, owing to the fact that the value of the index divisor has been arrived at by taking the average market capitalisation of all the 30 stocks for 1978-79. But are these numbers accurate?

3)Sensex go up four times in seven years, it jumped to 1,193.61 on April 1, 1991, from 500 in 1986 - a rise of 139 per cent in five years. How credible is that? Remember that this was one of the worst periods for the Indian economy:

Lets look at the CAGR returns if you bought at the bottom of a cycle and peak of a cycle. - CAGR of 17% from the lowest point of 2002 -2003
CAGR of 17% from the lowest point of 2008-2009 .

Peak of Cycle - CAGR of 8.5 % from peak of Harshad Mehta in 1992. CAGR of 6-7% from the highest points of 2008. CAGR of 11-12 % from the highest points of Ketan Parekh top in 2000. CAGR of 6-7% from the top of 2008.

The 40-40x move in 1979 to 1992 and 10-11x move in 1988-1992 distorts the averages. Doubt we are going to get such a crazy move in the future. Do not raise your expectations reading articles as a thumb rule one shud be happy making 3-4% more than the Govt Bonds in the long term.