If you look at the Nifty and it’s all time high of 6300, we are just 7% below it right now, around the 5900 levels.
But if you adjust for WPI inflation – a component that is still substantially lower than consumer price inflation – we are 50% away from the highs.
I’ve taken the Nifty monthly chart and adjusted every month for the inflation indexed since then, so we are speaking of the Nifty in 1994 terms. In those terms, Nifty must make another 50% after inflation to realize its highs.
Some of you are thinking, but what about dividends? Dividends add about 2% a year or so, but they can be useful in cutting some of the inflation downside. The Nifty “Total Returns” (including reinvestment of dividends) is only available since 1999, and here’s the deal:
The Nifty needs to rise 44% to recover its highest purchase value, even after considering reinvestment of dividends.
This long term buy and hold is now getting more and more suspect. Given the headwinds, I think we see another huge drop in the index.
I should also chart the Nifty in dollar terms and see how THAT has done. There’s even an index for that called the DEFTY. Coming soon, to a blog post near you.
