Let’s dive into an interesting analysis of the BSE Sensex, the BSE Mid Cap, and the BSE Small Cap indices. This comparison spans from April 2005 to 2023. The data reveals surprising insights about the performance of these indices over the years.
Long-Term Performance Comparison
When we look at the chart from 2005 to 2023, we notice that the Sensex, represented by the white line, has generally outperformed the mid cap and small cap indices, shown in blue and orange respectively. This trend is consistent for most of the period, with the Sensex leading the pack until mid-2023. This challenges the common belief that mid caps and small caps always outperform in the long run.
Recent Surge in Mid and Small Caps
However, there has been a notable shift since mid-2023. The mid cap and small cap indices have surged ahead of the Sensex. Historically, whenever these indices have shown such rapid growth, they tend to converge back to a similar range with the Sensex. This suggests that while mid and small caps can outperform in the short term, their long-term performance tends to align more closely with the Sensex.
Understanding Market Myths
This 18-year data set breaks several myths about market performance. Many investors believe that mid caps and small caps consistently outperform large caps over time. However, the data shows that the Sensex has been the stronger performer for most of this period. This is a significant revelation, indicating that large caps can be just as rewarding as their smaller counterparts.
Imagine having an investment strategy that not only matches but surpasses the performance of the Sensex, mid caps, and small caps. Given the difference in returns over 19 years, with the Sensex achieving around 1000% growth compared to 1300% for mid and small caps, a strategy that beats these benchmarks could result in substantial long-term gains. This highlights the importance of well-thought-out investment strategies over merely chasing high-growth indices.
No Need for FOMO
Investors often experience FOMO (Fear of Missing Out) if they are not invested in small caps or mid caps. This data should provide some reassurance. Whether you are primarily invested in large caps or have a diversified portfolio including mid and small caps, the long-term performance differences are not as vast as commonly perceived. Each category has its own potential for fantastic outperformance when backed by solid strategies.
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