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How have different portfolios of stocks and bonds performed in India?

Posted on 23 Apr 2023
Author: Sayan Sircar

Tags: Research ; Asset Allocation

4 mins read
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This article shows the historical performance of stocks and bonds in India since 1999 for different asset allocations.

How have different portfolios of stocks and bonds performed in India?

📚 Topics covered:

The role of asset allocation on portfolio returns
How have these portfolios performed since 1999
Drawdown of the portfolios
Calendar year returns of the portfolios

The role of asset allocation on portfolio returns

Many investors believe that they can get better returns by taking more risks. An excellent example of this behaviour is creating a 100% equity portfolio for investing instead of creating a mix of equity and debt assets in their portfolio.

In this article, the first of a series on asset allocation and performance, we will see how different portfolios where the asset allocation ranges from 100% equity on one side and 100% bonds on the other, along with 60:40 and 80:20 equity to debt have fared historically in India.

We have taken SENSEX TRI (Sensex Total Returns) data for equity and CCIL All Sovereign Bond data for debt and created four portfolios since Dec-1998 with the following asset allocations:

100% in equity
80% in equity, 20% in bonds
60% in equity, 40% in bonds
100% in bonds

The mixed portfolios are rebalanced between equity and debt once a month. A good way to implement such a portfolio is by investing in a hybrid mutual fund with the proper target asset allocation.

You can read the second part here: Should Indian investors invest 100% in equity for their goals?.

How have these portfolios performed since 1999

Market returns of stock and bond portfolios in India

We have plotted the four portfolios with varying asset allocations since data availability in 1998. The 100% equity portfolio has predictably ended at the highest level. In comparison, the 100% bond portfolio has risen the least. The intermediation 80:20 and 60:40 portfolios have come between the two extremes.

We have also marked the largest falls in the capital markets since this period:

the DotCom bust in 2000
the Global Financial Crisis in 2008
the COVID-19 pandemic in 2020

The chart shows that the 2000 DotCom bust had a minor fall vs the GFC 2008 vs the COVID-19 pandemic impact. However, that is misleading. Therefore, we will change the data’s appearance by switching to a logarithmic scale in the Y-Axis.

Market returns of stock and bond portfolios in India in log scale

Once we switch to a logarithmic scale, the accurate picture emerges. Each equal movement in the Y-axis represents a 10x change in portfolio level. We see that the

the DotCom bust in 2000 was the longest in terms of recovery
the Global Financial Crisis in 2008 had the steepest fall
the COVID-19 pandemic in 2020 lead to a minor fall and the quickest recovery

The point is that while the 100% equity portfolio has given the highest returns, the movement has been the most painful among all the alternatives. The following chart on these portfolios’ drawdown will clarify this point.

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Drawdown of the portfolios

Drawdowns of stock and bond portfolios in India

Drawdown is defined as the fall from a recent peak. The chart above shows the fall from a peak in the last year. We see the falls have been highest in the 100% equity portfolio and the lowest in the case of 100% bonds. The chart below breaks down each asset allocation separately to clarify the point.

Individual drawdowns of stock and bond portfolios in India

Calendar year returns of the portfolios

Yearly returns of stocks and bond portfolios in India

The table above shows how these four portfolios have performed every calendar year since 1999. We also see the average returns over this period and the growth of ₹1 lakh investment made at the beginning.

In a this article, we have covered the returns of lump sum and SIP investments across multiple holding periods for these portfolios.

Now we have a simpler set of model portfolio data here that you can refer here: Portfolio allocation models for Indian investors.

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