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Charts & Analysis

Even at All-Time High, The Nifty Must Double From Here to Adjust for Inflation

As the Nifty hits a new high, it’s useful to see Nifty adjusted for inflation – that is, despite the fact that the Nifty has hit the highest ever value, what does it mean for you once adjusted for inflation?

For this, we look at purchasing power of the money you have today. We have two inflation indexes – the Wholesale Price Index (WPI) since 2000, and the Consumer Price Index (CPI) for Industrial Workers since the same date.

Take an investment in the Nifty in the year 2000, and then “adjust” it for each of these indexes. If the index was 100 in 2000, and it’s now 180, that means prices are up 80% since then. So a Rs. 10,000 today will not buy you what Rs. 10,000 would buy you in the year 2000 – it would buy you, in 2000 terms, things worth Rs. 10,000 * (100/180) = Rs. 5,556. So effectively, you had to grow your money 80% just to stay in the same place.

Let’s look at a Rs. 10,000 investment in the year 2,000. If it was invested in the Nifty, then it would be worth Rs. 50,496 today – a 5x increase!

Yet, in 2000 terms, using the WPI, it is only up to Rs. 21,715 – a 100% increase in 13 years, which is substantially lower than you would have thought. And if we use the CPI, the return is below Rs. 20,000.

Nifty Adjusted for Inflation

What this also highlights is that the inflation adjusted Nifty must go up 50% in order to make a “real” new high.

(Some assumptions – since we don’t know the CPI and WPI for November and December are, I’ve assumed the October index numbers will up by 10% and 7% per year, respectively)

Some of you invested three years ago in tax-saving Equity Linked Mutual Funds. Most of these are just about turning a positive return now!