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Charts & Analysis

Nifty Adjusted For Inflation Returns Just 2.6%

I had earlier provided a chart of the Nifty since 2000, adjusted for inflation, including dividends and without.

A cleaner way to look at the index is to “adjust down” for inflation every month (using a monthly index). I have assumed about 9.5% for November and 9% for December (we only have WPI monthly data till October).


We are effectively at the lowest levels since April 2009. (If you recall,the index shot up 15% in May after the elections).

More importantly, look at the dead zone between May 1994 to May 2004 – net of inflation, you earned nothing (in fact inflation adjusted returns were negative till October 2004).

Worse: In the 17 year period that the Nifty has existed, the return, net of inflation, is 55%. The long term return of the Nifty, net of inflation, is 2.6%.

Those retirement plans that assume 15% equity returns need some rethinking.

  • Nir Dhar says:

    Hi Deepak,
    The key question is, “If not equity then what?”. One needs to do this kind of analysis for bonds, gold, real estate and may be then reach a conclusion on the best of the lot.

    • It’s not so much “if not equity, then what” – it’s the suggestion that if you consider debt returns to be close to inflation, then the equity premium over a long term is probably 3%. Of course, there are enough people that have seen a 20% CAGR in equity since 1994, and others that have gone negative.

  • Vijay says:

    Well, Inflation or deflation is the question to answer.
    Price of a car, say Wagon R 10 years ago = 3.5 lakh. Today- Same
    Since, the risk free rate is 8.5%, automobiles have seen a deflation of -8.5% over last 10 years.
    Price of a phone call has again seen both value and time correction. Deflation of may be -13%
    Price of LCD, TV, Fridge, Washing machine have again seen huge time correction, and minor value correction. Deflation of around -10%
    So unless you near poverty line, whose majority of expenses goes in buying raw pulses, bread and milk, there is deflation rather than inflation.

  • Vijay says:

    For an upper middle class family, inflation should be much less than 9%, say around 4%.
    For many goods- cars, white goods, electronics, telephone- prices have stayed same or fallen
    For food- inflation at 9%- basic food is a small percent of total expenses
    For real estate- high inflation- but if you owned a house- this inflation would have benefited you, negative for those who did not own a home.

  • Vijay says:

    Inflation benefits people who own assets, like land, equity etc. and kills those who don’t- poor. If were that poor-you will not be reading this post.

  • rrp says:

    – Another thing is good Mutual Funds beat Nifty by miles, for eg data, see valueresearchonline. (I dont think i need to explain the reason for this. eg Nifty index unbalanced weights construction etc).
    – Also debt returns are taxed (30%). Equity long term is not. With that is 3% the premium over debt ?
    Say Inflation unadjusted Debt = 9%, Debt with tax = 6%, Equity = 12%. Since inflation affects both same way, no need to subtract it here, so isnt premium at least 6% ?
    – Also same as 1st poster. Inflation affects everything same way whatever the asset. So anyway one has to be in one of the best assets, one of which is equity for most people

  • DJ says:

    NIFTY is not a good index. We need an index with 200-300 stocks at least. In the US, DJI has 30 stocks, S&P 500 has 500 and then there are the Russell 1000, 2000 and 3000. We need parallels of the S&P500 and Russell indices in order to look at total market return.