Are index stocks a sure bet to make money?

By Morningstar |  29-06-20 | 

No. There is no sure bet. There is a possibility that you could lose money.

Components of a stock market index are chosen by various guidelines, such as: minimum listing period on the stock exchange, market capitalization, liquidity, domicile, public float, sector classification, financial viability, and company track record. But end of the day, they are stocks.

Investing in stocks requires you to have a long-term orientation, but there is no guarantee about the eventual return. The same holds even if they are included in the market index.

You could make phenomenal returns. You could lose heavily. Because there is absolutely no guarantee when it comes to investing in stocks, you must diversify. Diversify across sectors and companies.

Gopal Kavalireddi, head of fundamental research at Fyers Securities collated data on the BSE Sensex stocks.

The table shows the return of the 30 Sensex stocks (1-year, 2-year, etc) as on June 26, 2020.

Bajaj Finance has delivered admirably. So has Titan, HUL, Asian Paints and Kotak Mahindra Bank. Is there any guarantee they will perform as spectacularly for the next 10 years? No. No guarantee.

Worth noting are the returns of  NTPC, ONGC and SBI; they show up in the red all through.

  • The returns are absolute, point A to point B.
  • Dividends have not been taken into account.
  • The stock prices have bonus and stock splits incorporated.

Click on image to enlarge

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Raj Rishi
Jul 1 2020 05:00 AM
 If sum aggregate of top 30 largest companies of any country gives negative return in a year or incurred loss then it is very hard for another companies to give good returns.
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