Gold Returns Adjusted for Inflation Since 2007 are Stellar, PPF Not So Much

11 comments Written on September 29th, 2013 by
Categories: Gold, Inflation, Nifty

Continuing the series on adjusting things for inflation, readers complained that hey, I wasn’t really playing fair talking about just the Nifty. How about the Public Provident Fund? PPF is where you can put your money and interest is compounded tax-free.

Rates of PPF are taken from Wikipedia, and the returns, adjusted for CPI Inflation, have been less than inflation since 2007. Which means, adjusted for inflation, even the PPF would have given you negative returns. (PPF accrues interest monthly, compounded in April of each year)

Let’s also add Gold, because that was another asset class you could have parked money in. Again, adjusted for Inflation

Here’s what it looks like:

Investments Adjusted for Inflation

Your purchasing power, for an investment made in the most tax-efficient, most secure investment (PPF) would have gone down about 11.5% since 2007. This is what “negative real interest rates” mean.

The Nifty, in similar terms, would have lost you 43%. (It’s almost flat on an absolute basis).

But the rank outperformer was Gold, with a return of over 48% beyond inflation since 2007. Gold is up 150% in absolute terms. No wonder we call Gold an inflation hedge!

Nifty Stocks Above DMA Shows Potential Fall

5 comments Written on September 25th, 2013 by
Categories: Nifty

A proprietary indicator I’ve developed, called the “Net stocks above the 20 DMA” is showing a potential steep fall in the index. This is calculated by finding out the number of stocks that are above their 20 day moving average and subtracting from it, the number below. This will oscillate between +50 and -50 (for the Nifty).


I’ve observed that the 20 DMA line (red in the chart above) oscillates to extremes. When it pulls back from those extremes is when there is a potential trade.

Every time the index goes above 40 and comes back to below 35, it seems to lead the indication of a big fall coming up. However no system is perfect, so you can assume that once in a while the signal will not perform. Also, in the past the index has moved up for a few days after the 20 DMA red line in the chart above retraced, but the fall came many days later.

The implied trade is to either write calls for October (option implied volatilities are high) or buy puts (which are expensive). Going short with a future will need a hedge in the form of a call or such.

Near Record Number of 4% Weekly Moves in the Nifty; 2013 Brings Volatility Back

Comments Off Written on September 21st, 2013 by
Categories: Nifty

Oh, Volatility is here. I had written in April that we were seeing unusually low volatility for what should be a much more squiggly index, with zero 2% days in 2013 (then). And it turned out even weekly volatility was very low, with just one week of a 4% move.

Things started to move back to normal in the second half of the year, with 12 big daily moves by August.

Oh, how things have changed in September. Look at the 4% weekly move chart now:

4% weekly moves

Things have really expanded and most of the above moves are after July.

And the daily moves, we’ve had six more in the last month, taking the count of 2% days in 2013 to 18:

Big 2% days on the NiftyThe rest of the year is likely to bring even more volatility, and I expect numbers to end up close to the 2009 number in terms of days, and probably the highest weekly move count ever.

Impact: The trade is perhaps to buy puts and calls that are deep out of the money, if the implied volatilities show low numbers (sub 30%), especially when there is enough time to expiry (2 months or more). But remember that we could quite easily move to less volatile times, so there is a risk of a return to the abnormal.

The “Real” Nifty, Adjusted for Inflation is 32% Below its 2007 Peak

14 comments Written on September 20th, 2013 by
Categories: Inflation, Nifty

When you adjust for inflation gains look terribly low. Inflation is how much your money’s purchasing power reduces. So you have to adjust for that, so let’s assume we invested X rupees in the stock market, got dividends and reinvested them, what would that money be today (in the same purchasing power that I originally invested them as)?

We are probably just 300 points from an all time high (5%) and but the difference if you consider dividends and inflation is much lower.

Nifty Adjusted for Inflation

This is only with WPI inflation. With CPI, which is at 9% but doesn’t have such a big history, things are much worse!

Note: Reader Nikhil asks me to put in the Nifty TRI (Total Returns Index) for a comparison. Your wish is my command!

Nifty adjusted, plus TRI

Snapshot: Massive Upmove Due to Fed, but Banks Shine Nevertheless.

Comments Off Written on September 20th, 2013 by
Categories: Nifty

We’ve just had a +3.7% day, and this brings us fairly close to the all time high.

Nifty Snapshot

And if you look at various sectors, banks shine as outperformers.

Sector Performance

Banks did over 20%, and Infra and Realty have been helped.

Will this last? Let’s try and look at this again after September is really behind us.

And…Nifty Turns Positive For 2013

Comments Off Written on September 11th, 2013 by
Categories: Nifty, Sectors

With a nudge and a wink, the Nifty has gone from it’s deeply negative zone just one week ago, into marginally positive territory for 2013:

Sector Moves 2013

Of course, as you can see, this is heavily skewed towards three sectors – FMCG, Pharma and IT. This is also reflected in the change in the weightage of these sectors in the Nifty (ITC is now the heaviest weight).

The last week has been huge, since Dr. Raghuram Rajan took over last wednesday evening. In the four trading days, we’ve seen some huge upmoves. This supposedly is true, recently, of all emerging markets, so I might be giving the good-old-RR a little too much credit.

Sector Moves: The Rajan Impact

And the year in a nutshell:

Nifty in 2013

Still four months to go!

Nifty, 10 Year Bond Yields and Inflation

4 comments Written on September 11th, 2013 by
Categories: Bonds, Inflation, Nifty

A great question for Prashanth: How does this chart from Ritholtz look like for India?

So I decided to plot the Nifty, the 10 year bond yield (month end values from RBI) and WPI inflation in a single chart.

Nifty, 10 year bond yields and Inflation

(Click for a bigger chart)

As you can see, India’s bond yields are not entirely related to the equity curve (other than from 2011, perhaps). As yields fall, equity markets should rise as money becomes less expensive to borrow – but in India, the bond market is not as well developed, so the transition was absent in the late 90s.

The early 2000s saw bond yields going up from about 5% to 8%, but the markets went up even higher! inflation was benign through this period and mostly, we had positive rates (interest rates higher than inflation).

From 2008, we have had a flat market, and yields have both fallen and risen with the stock markets. Only since 2011 have we seen bond market yields go down while equities have recovered.

The upper 6300 barrier has been a fairly stiff resistance now with three hits in five years. I wonder if this current upmove will take us there again.

Rajan Welcomed Well By Equity and Dollar, Bonds Don’t Like Him

2 comments Written on September 8th, 2013 by
Categories: Bonds, ExchangeRates, Gilts, Nifty

The entry of Raghuram Rajan has taken the Nifty up 7%, and the bank nifty up over 12% from its lows. The Nifty is now touching the 50 day moving average.

Nifty Snapshot

(Click for larger picture)

The recovery came in on Thursday and Friday. Banks were up nearly 10% on Thursday, with a great follow up day on Friday.

However, this could still be a temporary move, as the US data shows a taper in US bond buying is much more likely now.

While equity markets rejoiced, bond markets didn’t. The two days of the new RBI governor have seen rising rates:


10 yr bond movement

And the dollar has improved dramatically:


(While this is the RBI ref rate which is fixed at 12 noon, the end day rate was even further lower at 65.)

The next week is shortened (with a Monday holiday in India) but will see both IIP and inflation released, and Import-Export data too. Will Rajan’s good run continue?

Nifty Drops 5% in Aug 2013, Worst Month Of The Year

Comments Off Written on September 2nd, 2013 by
Categories: Nifty

The Month of August 2013 has not been kind to the Nifty, dropping 5.3% (and that’s not considering that on Wednesday, just two days earlier, the Nifty was actually 9.6% lower than the July close).

Nifty Monthly Returns

This is the worst of 2013, coming in August, taking the annual return down to –8.4%. We’re having  year similar to 2011 – then, the dollar depreciated from 44 to 52, and now we are down from about 53 to 66.

The return till August for the Nifty is:


We’ve had some volatile times recently and the good year has now switched to a bad year.

For completeness, the Sensex fell 3.8% (lower because the stocks are different in the Sensex)

Sensex Monthly