BSE Sensex: Rolling Return Analysis (1990–2026)

1. Scope

This paper examines rolling CAGR outcomes for BSE Sensex across 1–10 year holding periods using monthly closing prices, January 1990 to February 2026 (430+ windows). FD benchmark: 7% p.a. (HDFC Bank 1Y rate, Feb 2026).

 

2. Outcome Probabilities

Source: BSE Sensex monthly closing data, Jan 1990 – Feb 2026. FD benchmark: HDFC Bank 1Y FD rate as of Feb 2026, rounded to 7%.

 

3. Negative Return Probability by Holding Period

3.1 Frequency of Negative Returns

Negative return probability falls consistently with holding period. Markets move in cycles; short windows often capture only part of one — a crash without the recovery, or a rally without the correction. Longer periods allow the cycle to complete. Time does not eliminate risk, it reduces the chance of being caught mid-cycle.

3.2 Magnitude of Worst Outcomes

4. The 5-Year Inflection Point

• Positive return probability crosses 90% at year 5 (91%) — the first time it breaches this level across any holding period.
• Negative return probability enters single digits at year 5 (9%); remains below 10% thereafter.
• 70% of total improvement (1Y→10Y) is captured by year 5. Returns continue to improve beyond this point, but the biggest shift has already happened.
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5. Return Expectations

Percentage of rolling windows exceeding each CAGR threshold, by holding period:

• >7% (FD): Beating a basic FD is not guaranteed. Even after staying invested for 10 years, 1 in 5 investors still did not beat a 7% FD. Time improves the odds — but does not eliminate the gap.
• >10% CAGR: 10% is what the data actually delivers over the long run. Achieved in 68% of 10-year periods. Plan around this number, not higher.
• >12% CAGR: Possible but not consistent. Only 53% of 10-year investors crossed 12% — slightly more than half. Not a number to build a plan around.
• >15% CAGR: 12–15% CAGR is the exception, not the norm. At 10 years, fewer than half of investors crossed 12%, let alone 15%.

 

6. Implications

• Money you need in 1–2 years does not belong in equities. The risk of negative returns at short durations is too high. An FD is more predictable.
• At 5+ years, the odds shift in your favour. Not guaranteed — but significantly better than anything shorter.
• Plan around 10% annual returns. The data supports it. 12–15% does not show up consistently at any holding period tested.
• When you enter the market matters less than how long you stay. At 5–10 years, outcomes converge regardless of entry point.

Not financial advice. Based solely on BSE Sensex historical data. Individual circumstances, risk tolerance, and financial goals vary.

 

Methodology & Limitations

• Data: BSE Sensex monthly closing prices, Jan 1990 – Feb 2026. ~430+ observations.
• Method: Rolling CAGR for every overlapping 1Y–10Y window, advancing one month.
• FD benchmark: HDFC Bank 1Y FD rate: 6.26% as of Feb 2026, rounded to 7%.
• Survivorship bias: The Sensex is periodically reconstituted; underperforming companies are removed and replaced. Historical returns reflect the index as reconstituted over time, not a fixed basket of 30 stocks. This introduces upward bias in reported win rates relative to what an investor in the original 1990 composition would have experienced.
• Other limitations: No dividends, taxes, or transaction costs included. Past performance does not guarantee future results. This analysis tests holding period, not entry valuation or market conditions at the time of investment.

 

Saketh Donepudi | Market Analysis — Indian Equities | February 2026