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Charts & Analysis

Chart: The Nifty Hasn't Kept Pace With Inflation Since 2008

At Capital Mind we often do off-beat analysis of the markets. One of the things we do often, perhaps not often enough, is the concept of inflation adjusted returns. If you invested in the Nifty and it went up 10%, but inflation was 10% too, what would your “real return” be? Answer: zero. You haven’t increased your purchasing power one little bit. That means your inflation adjusted return is zero.

But in this we have to understand nuances. When you invest in the Nifty, you don’t realize that you actually get dividends as well. These add to your return, and can be significant. Therefore we have to consider another adjustment for dividends as well, and to keep things simple, let’s just assume that dividends are reinvested into the Nifty. There is data for this, from the NSE, called the “Total Returns Index”.


Using that, we can calculate long term inflation adjusted, dividend reinvested returns of the Nifty. Which means, if you had Rs. 100 in 2000 and invested it in the Nifty, how much would it have grown to, and how much could it buy now in terms of the purchasing power of year 2000?

Answer: 2.4 times more, but the graph will surprise you.


In “nominal” terms, the Nifty investment has moved from Rs. 10,000 to Rs. 65,422 – a 6.5x gain in 15 years.

In “real” terms, the Nifty has moved up from 10,000 to Rs. 24,326. This is a good return, but here’s the catch: It’s still lower than the number we saw in 2008! That means, the recent rise in the Nifty hasn’t even kept pace with the rise in purchasing power in the last 7 years. In fact, you put Rs. 10,000 on Jan 01, 2008 into the Nifty, the real return is horrible – you will only have a purchasing power of Rs. 7,600 today.

imageThe Nifty needs to rise a lot for it to reach a new “purchasing power” high. No wonder it doesn’t feel like the heady times of 2007-08 – we are still recovering from that time, and we are now at the highs we were in 2010.


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  • Mehul says:

    Interesting analysis Deepak. As always.
    And this is when retail investors are getting comfortable with their FPs’ pitch of only equities being an inflation beating asset class.
    So, actually which asset class gave any inflation beating / real returns in 2008-today period?

  • K.S.Saravanan says:

    if one invested at top of 2008 then he still to get return against adjusted inflation. But many Mutual fund executives tell if one invest for minimum 10 years then he can beat inflation. This means one has to wait for 2018.. Again if we take 2018 year low I still doubt whether he can get real return.
    These type analysis would help the “WORST CASE SCENARIO”

  • Vineet says:

    And one must remember that CPI typically understates inflation. It’s about 1~2% higher, some would even say 3~4%.

  • Dhiraj says:

    I guess the question is were equity large cap funds Still the best performing asset class among g sec funds, income funds, FMPs, gold ETFs adjusted for expense ratios.

  • Shan says:

    But the Nifty Jr has risen 67.2% in absolute terms compared to the Nifty’s 34.5% since Jan 1 2008. That’s a really huge difference. I think Indian large caps tend to be very overvalued in general and don’t give a great return (although of course the volatility is lower). The midcaps, though, that’s where the magic is. If you have a long term horizon and are ok with volatility, the Nifty Jr is a better index to invest in rather than the Nifty.

  • This is despite Index replacing losers with new winners. If you take the same 50 companies of Nifty during 2000 and compare to now, it would have fared even worse. Most of that damage is from 2009 to 2014. Stocks under performed and inflation was 10%+ for few years. The gap widened as your chart shows.
    But in 2015 inflation is coming down. If stocks make a come back, it would show some recovery.

  • shinu says:

    Wrong interpretation I would say… a 20 PE 2015 is definitely better than a 28 PE 2008 for any investor (not speculator) which is 40% below the exuberant market which is hardly growing at 15% yoy.

  • swami says:

    This is fairly biased and a little stupid analysis. Picking up a single point of time in dec 2007 is like exaggerating the point too much, as if the world all invested in the market during those few months. Based on the chart, the key take away is that despite the heady inflation for last 3-4 years, the equity has been able to protect investors. Its a well known fact that equity doesnt do well during high inflationary periods. I am actually surprised that equity did this well.