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Charts & Analysis

The Nifty Adjusted For Consumer Price Inflation Is Still Lower Than 2008

If you had put Rs. 10,000 in the Nifty in 2000, and had reinvested all dividends it would have grown to Rs. 69,410 today. (From the “Total Returns” index given by the NSE). This means you’ve just had a 7x return on the biggest index in about 15 years.

However, if you consider the buying power of the rupee, it has declined due to inflation. If we take the Consumer Price  Index (CPI) and back-cast it all the way to 2000, and then run the same calculation on the Nifty (with dividends reinvested) our answers are very different:

image

As you can see, after adjusting for inflation, even though the Nifty is close to an all time high, the purchasing-power adjusted Nifty is still only a little bit above levels seen in 2011 (the previous peak) and then, much below the effective level in 2008 January.

This means all these returns we’re all proud of hasn’t even crossed the highs of the 2008 era, after adjusting for inflation.

All the western countries seem to be begging for some inflation. India just has too much of it.

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  • kumar says:

    in keeping with the current government priorities, we have ‘inflation made in india’.
    now, we need to figure out how to export it.

  • foo says:

    I rather look at it in USD terms. After all if I am getting rich, I should be able to buy an american/european citizenship some day.
    Jan, 2008 : Nifty 6300. USD-INR 4x.xx
    Jan 2015: Nifty 9000. USD-INR 6x.xx
    USD-INR appreciates 50%. Nifty goes up 50%. Same difference.

  • Leo says:

    well they are begging for inflation coz they have had their bubble era we are in a bigger bubble than they are in .Housing prices dont go up 10 20 30x in 10 years .India is in big danger and no one seems to see it.

  • Ranga says:

    Is our housing bubble very unlikely to burst, ? I think less likely to even shrink. Only the re-sale market will get a squeeze.
    Reasons unlike in pre-2008 USA , home loans in India have [1] mandatory big portion of loan as down-payment . [2] home loans in India are full-recourse loans [3] huge black money in housing / lands.
    This combo ensures noone will think about foreclosures here (no, I am NOT referring to pre-closures). Plus, banks’ large exposure to home-loan segment ensures the builder-banker nexus doesn’t allow price reduction for unsold units.
    I’ll be happy to stand corrected.

  • sachin1000 says:

    US exports inflation to India and China (who struggle to keep exchange rate peg) and US get cheap goods and services in return !!
    Eventually china seems to be removing dollar by directly dealing with other countries. I think US may not remain important market for them eventually…