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Over four decades, the Sensex has become more than just a barometer of India’s equity markets: It has been an archive of the country’s defining moments. It has absorbed the shocks of wars, weathered financial crises and a once-in-a-century pandemic, and responded to policy shifts and political transitions. The Sensex offers a real-time reflection of how the nation absorbs, adapts and advances through eras.
Sensex: 1986 to 2000
6 negative years out of 15
The decade from 1986 to 1996 captured the Indian equity market’s evolution: From a small, sentiment-driven marketplace to a progressively modernising financial system shaped by reforms and crises. The Sensex began the period at a modest base but soon witnessed one of its first major bull runs. Optimism about Prime Minister Rajiv Gandhi’s modernisation agenda, early steps in deregulation and improved corporate performance fuelled steady gains. Markets also reacted to global events such as the 1987 global stock market crash but were not derailed from the longer-term upward trend.
The early 1990s were transformative. The Gulf War (1990–91) triggered inflation, high oil prices and foreign exchange pressure, contributing to India’s balance of payments crisis. Equity markets reflected this uncertainty with sharp volatility.
Everything changed in 1991, when the Narasimha Rao government unveiled landmark economic reforms amid crisis. Liberalisation, industrial de-licensing, import duty cuts and a new foreign investment regime set the foundation for long-term growth. Market sentiment improved noticeably.
But the period was not all smooth. The Harshad Mehta scam (1992) created an euphoric rally and was followed by a brutal crash. The Sensex surged from around 1,200 to nearly 4,500 before collapsing as the scam — rooted in banking system loopholes — unravelled. Retail investors suffered heavily, and market credibility took a hit.
The episode led to sweeping market reforms: Strengthening of Sebi’s regulatory powers; creation of the NSDL and introduction of dematerialisation; move toward screen-based trading; and tighter banking and capital market controls.
Through the mid-1990s, the Sensex stabilised and recovered on the back of improving corporate earnings and the continuity of reforms under successive governments. The entry of foreign institutional investors (FIIs) in 1993–94, India’s strong macro recovery and global investor interest in emerging markets supported steady inflows.
By 1996, the equity market had regained momentum. The period between 1996 and 2000 was marked by fluctuations, political uncertainty and a dramatic rise in technology-driven valuations — culminating in India’s version of the dotcom bubble.
Frequent government changes — five under three Prime Ministers — kept political risk high, contributing to swings in investor sentiment. The Sensex rose on Budget expectations and growing foreign investor interest but soon entered a volatile phase.
After peaking in June 1996, the index fell to a three-year low by December due to tight liquidity and weak corporate results. The 1997 “Dream Budget”, with tax cuts and lower import duties, triggered a sharp 6.5 per cent rally, restoring confidence.
The Asian financial crisis (1997–98) caused volatility and capital outflows, though India’s partial capital controls softened the blow. Post-Pokhran sanctions (1998) and the Kargil conflict (1999) dampened sentiment temporarily.
Despite these challenges, India pushed ahead with reforms in telecom, insurance, and infrastructure. The NDA government elected in 1999 brought relative political stability. From late 1999, the market entered a powerful rally led by the tech-media-telecom sectors. Massive inflows by FIIs and mutual funds propelled the Sensex past 5,000 in October 1999 and 6,000 in February 2000, mirroring global enthusiasm for internet-based businesses.
The bubble peaked by March 2000, and sentiment weakened as global tech markets began correcting.
2001 to 2025
4 negative years out of 25
The period saw the Indian stock market withstand a series of international shocks: The dotcom spillover, 9/11 attacks, the global financial crisis, and the pandemic. Yet it delivered one of the strongest multi-decade returns among emerging markets. Despite episodic corrections, the trend remained a secular, long-duration bull run, with the 30-share index gaining in 21 out of 25 years.
Corrections were short lived and followed by even stronger recoveries. Domestic reforms, improved macro frameworks and the rise of domestic investors ensured structural depth. Even disruptions like demonetisation accelerated the move toward formalisation and financialisation, indirectly supporting long-term equity inflows.
The turn of the century, however, began on a weak note, shaken by the Ketan Parekh scam, which exposed excesses in speculative stocks. Retail investor sentiment weakened just as the global dotcom collapse unfolded. The 9/11 attacks added to global uncertainty. But strong fundamentals set the stage for recovery.
Between 2003 and 2007, India witnessed one of its most powerful bull markets. GDP grew at an average of 7.9 per cent, supported by a robust investment cycle, banking reforms, and rising domestic consumption. Foreign flows poured into the capital markets. The Sensex vaulted past major milestones — 10,000, 15,000, and 20,000 — reflecting global confidence in the Indian story.
The 2008 global financial crisis triggered the sharpest fall since 1992, with the Sensex dropping over 60 per cent from its peak. Liquidity injections worldwide led to a strong 2009 rebound.
However, from 2011 to 2014, India faced slowing growth, elevated inflation, fiscal stress, corruption scandals and a freeze in policy-making. GDP growth dropped from 8.5 per cent to 5.2 per cent within a year.
A stable majority government in 2014 — the first in 25 years — helped repair sentiment. The period featured both disruptions and landmark reforms: Demonetisation, roll out of goods and services tax, Insolvency and Bankruptcy Code, infrastructure push, and expansion of digital public goods like UPI.
The pandemic caused a historic crash in March 2020, followed by aggressive global monetary easing. India’s swift reopening, resilient corporate earnings, and domestic investor participation powered a V-shaped recovery.
The period also saw global inflation spikes, rate hikes, and the Ukraine war — yet India remained the preferred emerging-market destination. Long-term structural themes — formalisation, manufacturing revival — continued to drive the market to new records.
