Comparison of Indian and American stock markets

(This hub is published on December 12, 2008.)

Is it better to invest in foreign stock markets than to in American market. People are more or less convinced with a positive answer, especially after economic crisis and financial problem in America. People were used to invest in America and American stock market untill near past. However, the perception is changed since financial problems has started in America after economic crisis.

This hub is written here to answer the question " Is it safer to put money into foreign stocks than American stocks, and what are the best short-term and long-term stocks?"

India is a foreign country for the Americans and it seems better to invest in shares and mutual funds in India than to in America, India is performing much better in economic front with continued average GDP growth of seven percent per year. Indian stock market is performing well. BSE and Nifty both stock markets in India are growing by leaps and bounce.

Here is a production of comparative data of Dow Jones Industrial average, the American stock market, and a foreign stock index Sensex (Bombay stock exchange Index, India). It may help you while investing in shares and mutual funds.

Of course, decision will be yours whether you will be puting your money into foreign stock exchanges or in American market. It is also adviced that you should consult some expert before investing because investing in stocks are subject to market risks. It is also stock specific. Profit depends on how intelegently you invest and how the particular market or stock behaves. I can not predict the future specifically but can help you with some data available.

History of both the indexes follows in the next paragraph.

Dow Jones was at 100 levels in 1910. It took 17 years to reach it to 200 in 1927 however; it crossed 300 marks in 1929. It has fallen very sharply to a level below 50 in 1932. It was approximately 15 percent of 1929 level. What a sharp fall it was!

It again touched 200 level in 1947and regained 300 levels in 1954 that means Dow Jones took 25 long years to regain to its previous 300 levels in 1929.

It took a quarter century for the Dow Jones Industrial Average to crawl from 300 to 300. However, in little more than two years, the average sped through the next barrier, 500. The Dow Jones Industrial Average reached 500 milestone on March 12, 1956. Dow Jones has nothing remarkable until the euphoria of 1972. Cheers rang out on the floor of the New York Stock Exchange when the Dow Jones Industrial Average crossed the 1000 mark on Nov. 14, 1972. It reached 2000 marks first time in 1987. On Jan. 8, 1987, that the average first hit 2000. On July 17, 1990, the Dow industrials closed just a quarter points shy of the next thousand-point mark, closing at 2999.75. The next day, the average shot above 3000 in intraday trading, only to close unchanged at the tantalizing level of 2999.75. After tasting some lows the industrial average rallied and broke the 3000 barrier, closing at 3004.46 on April 17, 1991, a little more than four years after the 2000 barrier fell. By contrast, it took the average 14 years to get from 1000 to 2000. It touched 4000 level in 1994 and 5000 in 1995. It gained remarkably between 1995 and 1998 to reach 10000 marks. It climbed over 11000 before having a free fall. It lost all its gain in four years in 2001.

The Bombay Stock Exchange represents Indian stock market and its index is called sensex. At intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition. It ensures reflection of current market conditions. They calculate on the basis of free-float capitalization method; a variation of the market cap method. It uses company’s float, or shares that are readily available for trading, for the purpose of calculations. The free-float method does not include restricted stocks, i.e. those held by company insiders. This method is similar to the method of calculations for Dow Jones.

The base value of the sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79.The Sensex was at 122 levels at the end of 1979-80 that reached to 200 level in 81-82. It took mere two years to reach the level where as Dow took 17 years to gain the same (from 1910 to 1927). Of course, Dow reached 300 points at a faster pace (in two years, 1929) where as Sensex reached the level in 4 years (1985-86) but it did not only reach the 300 mark but crossed 400 in the same year to close near 500. (492.23). It broke 500 levels just after a year. It has never fallen in between (on year-to-year basis). Continuous rise in index let the market rise to 500 level from its base with in a very short period of seven years.

It took Dow 46 years to reach 500 mark from 100 (1910 to 1956) but Sensex achieved it in only seven years. Is not it remarkable? Just seven years instead of forty-six? It means that Indian stock market had growth seven times fatser than America.

Sensex was at 1000 in the next four years (1990-91) where as Dow took 16 years to be doubled from 500 to 1000 (1956-72). Again sensex was four times faster than Dow Jones.

What sensex achieved in eleven years Dow took sixty two years for the similar rise i.e. from 100 to 1000.

Sensex hit 2000 mark in 1992-93, mere two years after the reaching of 1000. What about Dow? It was as slow as previous. The journey of Dow from 1000 to 2000 took sixteen long years (1956-72).Here indian stock market had grown eight times faster than US.

In 1994-95, within two years of reaching 2000 Sensex completed its journey to 3000 mark. Dow had accomplished the same journey in four years (1987-91). This time it was relatively faster in comparison to its own previous records but still took time double to its counter part. Sensex took its longest time to cross 4000 mark from 3000 level. It could able to reach it in 1999-2000, in five long years where as Dow completed this journey faster than Sensex in only 3 years (1991-1994).

Sensex completed its journey from 100 to 3000 in mere fifteen years compare to its counter part’s eighty-one long and tiring years. Dow Jones took 17 years to reach 200 marks from 100! In addition, after a sharp fall it took twenty more years to regain its status of 200 that means 37 very long years to a journey from 100 to 200! Sensex has not even completed that much of time so far and tasted a level of 21000 plus once in January, 2008.

Dow has yet to taste that level. It has yet to taste even15000 level.

Indian economy has been growing at the rate of more than eight percent since last couple of years and expected to maintain its growth at six to seven percent this year. We have to remember that America, Japan, Canada and most of the European countries have already entered into recession. The world is tasting heat of economic crisis and financial problem of America.

In 2001-02, Sensex tasted a low of 2595. It was 21 September, just after the 9/11. Dow was at 8235 on the same day that was 3.2 times higher than that of Sensex. As of today, while writing this hub, Dow is trading near 8600 and sensex has closed at 9690 i.e. more than one thousand points above Dow. So whether it is a bull market or a bear, Sensex runs much faster than Dow does. Both the stock markets gained in bull markets and lost in bear markets but Sensex performed far better than Dow did over all. Dow could not be able to double in fifteen years where as Sensex managed a steep rise of almost forty times in the same period (3975 in 1994-95 from hundred points in base year 1979-80) before tasting its first bear market.

In last seven years i.e. from 9/11 2001, Dow Jones has gained only four hundred points or five percent so far but Sensex has gained seven thousand three hundred points or two hundred seventy five percent. Just compare the recent long-term data if you do not want to go to the history.

Moreover, whenever sensex fell, it managed to regain its previous status sooner than Dow Jones. For example what it lost in 1995-96, it regained the same with a bonus of seven hundred points or seventeen percent in 1999-2000, i.e. in four years. It has fallen from 4269 of 2000-01 to 3332 in 2001-02 and jumped to 4492 in 2003-04. It had been a continuous bull market for Bombay Stock Exchange since then to reach up to the all time high of twenty one thousand plus in January this year. The Sensex has fallen freely from that time to taste below eight thousand marks in October this year. Since then it has started recovering to reach the present stage of near ten thousands.

Even that fall between January and October was not due to any internal condition but in the influence of global (especially American) markets. Foreign investors have sold out much of their stocks to encash because they needed money to fulfill their obligations in their own countries. Domestic retail investors and financial institutes have not yet sold out. They are the net buyers even in this bear market.

All these indicates that Indian stock market has been growing much faster than American market and it likely to behave in similar pattern in near future.

I have been posting updates for both Indian and stock markets in another hub. Please click to view the updates.

Comparison of Indian and American stock markets: Updates

You can decide your own from the above mentioned fact.

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( The writer does not gaurantee profit from any investment in Indian market. The hub is based on historical back ground. Datas are collected from various sources and the author is not responsible for any mistakes. The reader should check it for authentication. Investments are subject to market risks and one has to take his own decission. Author is not and will not be responsible for any loss or damage)