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Six Years of Nothingness: The Nifty or Gold, Adjusted for Inflation, Have Been Lousy Investments

Nifty-Adjusted-for-Inflation-1.png

Let’s take the Nifty.

Let’s assume you invested Rs. 10,000 in it in 2000. Now Rs. 10,000 could have bought a certain set of items then.

Then the Nifty grew, and grew, and grew. So did the cost of the items you could have bought with that Rs. 10,000.

So today that Rs. 10,000 is Rs. 62,428. If you reinvested all the dividends you received also.

But in terms of the same purchasing power, it’s a lot lesser! Since inflation has taken up the price of the goods you could have bought for Rs. 10,000 we “adjust” the Nifty for inflation downwards into a constant purchasing power metric. That tells us a story: 

Nifty Adjusted for Inflation

 

The real thing to note is:

  • Let’s ignore the “high” of 2007 – just to believe it was an outlier.
  • the highs of 2010 and 2015 were much higher in the Nifty, but they are actually lower in inflation adjusted terms
  • As much as it remains true that stocks should beat inflation in the longer term, have they really? Today, we are lower than the highs of 2008 by a large number. We are even lower than the highs of 2010 – and that is literally six years of nothingness

Is Gold Becoming a Better Bet? Not By Much

Gold is considered a hedge against inflation and indeed it too has risen over 6x since 2000 (when it was Rs. 4000 or so for 10 grams). Let’s adjust a Rs. 10,000 investment in Gold (in 2000) for inflation till now – and compare them all:

Nifty And Gold Adjusted for Inflation

Gold and Nifty seem to have their “regimes” and the last two years have been that of the Nifty. Before that, from 2011 it was Gold that won. In the mid 2000s, it was the Nifty again. 

And we’re seeing Gold move back up – effectively both the Nifty and Gold have given similar returns since 2000 now – and both are substantially off their peaks. Gold is at the same level, inflation adjusted, as it was six years ago.

Effectively, Gold or the Nifty, we have seen six years of nothingness

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