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Charts & Analysis

The “Real” Nifty, Adjusted for Inflation is 32% Below its 2007 Peak

When you adjust for inflation gains look terribly low. Inflation is how much your money’s purchasing power reduces. So you have to adjust for that, so let’s assume we invested X rupees in the stock market, got dividends and reinvested them, what would that money be today (in the same purchasing power that I originally invested them as)?

We are probably just 300 points from an all time high (5%) and but the difference if you consider dividends and inflation is much lower.

Nifty Adjusted for Inflation

This is only with WPI inflation. With CPI, which is at 9% but doesn’t have such a big history, things are much worse!

Note: Reader Nikhil asks me to put in the Nifty TRI (Total Returns Index) for a comparison. Your wish is my command!

Nifty adjusted, plus TRI

  • Mehul says:

    Such revelation! So whatever happened to the whole theory of equity being the only asset class to give inflation beating returns in looong term. Hold any water?

    • lohit says:

      6 years is hardly ‘long term’. Long term,IMHO should be at least 15-20 years. Roughly half an investing lifetime assuming you start at age of 22 and end at around 60. .
      That said, from 1964 to 1981 ( I think), the Dow Jones went up by 1 (yes one) point, even with the high inflation of the 1970s. So, yes there are cases where equities have been trounced by inflation.
      On the other hand 1981 to 1999 had the greatest bull run in Dow history 🙂
      Maybe the Sensex will run flat for a few more years, and when even the most hardened investors have capitulated, it will start showing signs of life.

  • ramesh says:

    deepak agar tum naa hote to itni awesome things hamko kis se pata chalti .. three cheers man for you and your blog

  • Nikhil says:

    It might be interesting to look at this compared to say, Nifty TRI on the same graph to put things in perspective.

  • Kamlesh says:

    I couldn’t find Sensex TRI on BSE website.
    If you have it please post. would like to see 1992-2003 peak to trough drop in real terms 🙂

  • Gold Bug says:

    70% above 2009 lows. Good return.

  • Madhavan Sridharan says:

    great work… how easy is for snake oil charmers to sell… how does this all change if the composition of nifty is also factored..
    would appreciate your analysis..

  • Sanjeev B says:

    Please put CPI inflation on the graph! Let’s get the real dirt.

  • Ramamurthy says:

    Interesting,but of what practical use?

  • DJ says:

    I think returns would be better if one looked outside the Nifty. I don’t know if we have good data for Nifty mid cap or even a small cap index encompassing the rest of the market? It would have been nice to have something like the Russell 3000 index…

  • How about this says:

    Isn’t that a stupid analysis??
    Let’s see this way: I had 6000 rs at 2007 peak time. I was able to buy 100 Kgs of a cereal at that time. Now if I go to market with 6000 rs, I will be able to buy say only 60 Kgs of the same cereal (because its price has risen). So earlier I was able to buy 100 Kgs, now only 60 Kgs (in the same money) – 100 kgs then, 60 kgs now so this is the loss due to inflation.
    Now let us come to try to apply the same logic to Nifty- and see how clearly it fails and how stupid it is to read one phenomenon and apply it wherever you feel like:
    I had 6000 rs at 2007 peak time, I was able to buy 1 unit of Nifty. Today if, I have same 6000 rs I will again still be able to buy 1 unit of Nifty!! 1 unit then, 1 unit now – no loss due to inflation!
    And if any one of you even thinks of speaking words such as ‘loss of Dividend’ – think before you speak – I have not included the bank-interest on the same 6000 rs!

    • Let me bite. There’s a difference between an investment product and a consumption good. A consumption good, like a car, is something for which you say that I can buy it for 500K today versus 400K in 2007 so there is 25% inflation in six years.
      But an investment product is where you put your cash, so it is, like cash, a store of value. So the money has to grow to give it the same purchasing power – that is, you could have kept your money in cash which would not buy you that car. You could have kept it in a 6% fixed deposit (net of taxes) so 400K grows to say 560K (40% compounded) in six years. Or, you could have invested in the Nifty, thinking you will beat inflation, but the money invested remains the same at 6,000 Nifty today; so in effect you needed 25% just to buy the same car, and you didn’t get it by putting money in the Nifty in 6 years.
      Having said that, of course it’s only six years, and the future may have more for us in store. But six years ago, stocks were sold as a hedge against inflation in the long term (and even then, people definied long term as 5 years).

  • Bhavesh Chauhan says:

    Good analysis but could have been better with CPI and best if somehow the real ground level inflation would have been known. Firstly, even CPI inflation does not take correctly measure the real inflation in India, forget WPI. Govt understates the inflation in India so without trying to gauge the actual inflation, I would like to state that in real terms Nifty is well below 32% stated here. But since the point touches on real value of Nifty I still appreciate the analysis given that many lay-man do not understand the effects of inflation. To cite an example, people think FDs are good investments in high-inflationery times. However, FDs do not even cover inflation. As the legendary investor Mr. Buffett states, equities are still the best among all the poor asset classes as a hedge against inflation.