Do drawdowns mean you end up with negative returns?
The Indian stock market has demonstrated remarkable resilience over the years, if we look at the historical performance of the BSE Sensex and the Nifty Midcap 100 indexes.
Feb 2025
5 mins read
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The Indian stock market has demonstrated remarkable resilience over the years, if we look at the historical performance of the BSE Sensex and the Nifty Midcap 100 indexes. Over the years, the Indian market has witnessed many events like the dotcom bubble, 2009 financial crisis and the 2020 COVID virus induced fall.
Despite experiencing significant intra-year declines, both indices have predominantly ended with positive returns over the long term. This resilience underscores the robustness of the Indian economy and the potential for growth in its equity markets. More importantly, it shows that long term investors who remain focused on their goals eventually end up with positive results.
If you look at the calendar year returns of BSE Sensex for the last 45 years, the index has delivered positive returns in 36 out of 45 years. Even in these positive years, the index experienced intra-year declines ranging from -10% to more than -20%. For instance, in 1985, the Sensex delivered 94% return despite a -19% drawdown during the year. Similarly, in CY 2020, the index was up 16% despite a significant -38% intra-year decline.
| BSE Sensex Return | |
| Intra Year Declines | Number of Calendar Years with Positive Returns |
| 0 to < -10% | 4 out of 36 |
| -10% to < -20% | 23 out of 36 |
| > -20% | 9 out of 36 |
CY1980-2025 YTD. As of Jan 31, 2025.
In the above table, we can see that even if the Sensex witnessed a decline of up to -10%, in 4 out of 36 years, you would have earned positive returns in those calendar years (Jan 1-Dec 31). Similarly, in the second instance, even if the intra year decline is in the range of -10% to -20%, in 23 out of 36 years, you earn a positive return. Lastly, even if the decline is more than -20% in any particular year, in 9 out of 36 years, you would have earned a positive return.
In the above table, we can see that even if the Sensex witnessed a decline of up to -10%, in 4 out of 36 years, you would have earned positive returns in those calendar years (Jan 1-Dec 31). Similarly, in the second instance, even if the intra year decline is in the range of -10% to -20%, in 23 out of 36 years, you earn a positive return. Lastly, even if the decline is more than -20% in any particular year, in 9 out of 36 years, you would have earned a positive return.
This pattern suggests that short-term market volatility should not deter long-term investors, as the market has historically recovered and delivered positive outcomes. Thus, investors should ideally not rush to pause their systematic investment plans (SIPs) because the market is trending lower. In fact, this is very advantage that investors should not miss out on. Investing when Net Asset Values (NAVs) are trending lower helps investors accumulate more units and benefit over the long run. Any decision
to redeem or stop SIPs should be taken in context of your goals. If your goal is near completion, it makes sense to rejig your asset allocation.
The recent sell off trigged in the market has impacted mid and small cap indices as compared to large caps. As of February 28, the BSE Midcap Index is down by -16.91% while the Small Cap Index by down by -21.92%, over a two month period.
If we trace the history, The Nifty Midcap 100 Index of 21 years, the index has delivered positive returns for 15 years, despite intra-year declines often exceeding 10%. For example, in 2009, the index surged by 102% after a 24% drawdown, showcasing the potential for recovery and growth.
| Intra Year Declines | Number of Calendar Years with Positive Returns |
| 0 to < -10% | 1 out of 15 |
| -10% to < -20% | 8 out of 15 |
| > -20% | 6 out of 15 |
CY2004-2025 YTD. As of Jan 31, 2025.
The resilience of the Indian stock market can be attributed to several factors, including the growth of the middle class, government incentives for MSMEs, and supportive liquidity measures by the Reserve Bank of India (RBI). With inflation expected to average 4.20% and GDP growth projected at 6.7% in FY26, the economic outlook remains favourable.
The resilience of the Indian stock market can be attributed to several factors, including the growth of the middle class, government incentives for MSMEs, and supportive liquidity measures by the Reserve Bank of India (RBI). With inflation expected to average 4.20% and GDP growth projected at 6.7% in FY26, the economic outlook remains favourable.
While market falls can be unnerving, investors should view intra-year declines as opportunities rather than setbacks. Historical data indicates that the Indian stock market has consistently rewarded those who stay invested through cycles. This reinforces the importance of a long-term investment perspective in navigating market volatility.
In this age of information overload, investors are constantly exposed to news/data/trends about market events. Further, easy access to portfolios through smartphones encourages investors to check their portfolios often. This can nudge investors to take some action to outsmart other investors in connection with news/events. But timing the market is not an easy job for most sophisticated investors. SIP is designed to overcome this tendency of timing the market by ensuring consistent and disinclined investing. Categories like Balanced Advantage Funds and Multi Asset Funds, which are designed to take active asset allocation calls can enable you to tide over the current volatile market with ease. A golden thumb rule of deciding your equity/debt allocation can be based on the time horizon of the goal. For instance, if your goal is say seven years away, you may consider having a higher allocation to equities, depending on your risk appetite. Similarly, if you are closer to achieving your goal, it is wise to start shifting your allocation towards debt to protect your corpus from the volatility of markets. Remembering the old adage - as boring as it may sound serves investors well in the long run - “Time in the market is more important than timing the market.”
(Data Source: FundsIndia and Internal)
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All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindia.com/mutual-funds/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
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