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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

  • Sanjay Singhaniya says:

    My dear friend Deepak, I am dying for investment with “nothingness”. Can you predict any better investments (please dont suggest futures and options and strangles) ? For that matter can you predict investment with nothingness for next six years?
    In investment world, we have to always chose lesser evil. Any investment which can just match inflation in long term is good investment.

  • DJ says:

    Keeping up with inflation in the short term of last 5-6 years is not a bad thing… more than half of the reason for investing is to have your assets keep up with inflation.

  • Parvez says:

    Its not total nothingness, it the capital that feeds the Govt STT,stamp duty etc,etc, Brokerage, and not mention speculated losses and profits 😉

  • Parvez says:

    Its not total nothingness, its the capital that feeds the Govt STT,stamp duty etc,etc, Brokerage, and not mention speculated losses and profits 😉

  • ABS says:

    This is very depressing. What does one do to not only preserve their purchasing power but also ensure that a fair bit of return is achieved?

  • rohitms says:

    Gold is likely to outperform Nifty by a huge margin going forward. You need a longer time period to study and understand this. Look at a 30 year chart of the Gold/Sensex ratio and you will get a different picture

  • mintdesai says:

    Deepak
    I have seen you posting similar posts once in a while saying tha nifty inflation adjusted returns are very less or -ve etc
    My questions is … what should a layman do ? He has a job to do and does not leave him much time to do active trading ( forget skills) What is a good option for him to be close to inflation (if not beat).
    That is why people end up investing in real estate where returns have been good. They need not sustain in future and you can always find pockets where returns have been -ve in real estate as well.

  • Hmm.. Am I missing something? It seems like inflation adjusted returns doubled to 22,275 from 10,000. Am I simply misreading the charts?

  • dsylexic says:

    cpi/wpi inflation, while useful to draw general conclusions, are pretty useless at a household level. in the last 10 years, your consumption basket has probably changed. so instead of spending it on pizzas and movie nights or at the bar, you are spending it on school fees or health insurance etc. every household has a changing basket of consumption as it moves thru its lifecycle.
    too much aggregation of the information into a tiny single number like the cpi gives us a number to anchor our idea how our investment performed. but how it affected YOUR wealth or income? it gives nary a clue
    everyone should build their personal inflation indices. sometimes you include stuff( and call them a lifestyle upgrade, which you now set as a baseline) ,sometimes stuff falls out because you no longer care about those goods.