Decades of NIFTY 50 Performance: A Comprehensive Analysis of Returns from 1991 to 2024

_{Published on: 07 Jul, 2024 11:11}

 

1. longer investment horizon curtails chances of negative return, if someone has invested in NIFTY 50 for 10 more years he would not have received a negative return.
2. For a ten-year investment period, the average return is 11.45% (CAGR).
3. A 15-year investment period provides the best average return of 12.37% (CAGR).
4. Since June 1994, NIFTY 50 has given a return of 10.35% (CAGR).

 

Introduction

The Nifty 50 is a benchmark stock market index in India, representing the weighted average of 50 of the largest and most liquid Indian companies listed on the National Stock Exchange (NSE). It covers 13 sectors of the Indian economy and is used to gauge the performance of the Indian equity market. Established in 1996, the Nifty 50 is one of the two main stock indices in India, the other being the BSE Sensex. It includes companies like Reliance Industries, HDFC Bank, and Infosys, reflecting the overall market trends and economic health of India.

Key Observation About NIFTY 50 Long-Term Return Analysis (28-June-2024)

1. 1 Year Return
   • The average 1-year return for NIFTY 50 is 16.59% and the median return is 10.57%
   • Between 1991 and 1992 NIFTY 50 gave the highest return of 118.35% during the Harshad Mehta bull period, followed by a spectacular correction of -22.01% between 1992 and 1993.
   • 1990 was a period of booms and busts in the Indian share market as 1-year return data suggest. Maybe one of the reasons for the low trust bestowed in the share market by Indian retail investors.
   • The four worst performing years were around the 1990s (2001, 1995, 1993, 1997).
   • 
2. 5 Year Return
   • 5-year returns are less volatile compared to 1 and 3-year returns.
   • The average return for 5 5-year holding period is 11.43% and the median return is 9.51%.
   • The chance of losing money in 5 year holding period is around 10.34%.
   • The maximum return for a 5-year holding period is 32.49% CAGR between 2002 and 2007.
3. 10 Year Return
   • The 10-year return data suggests the chance of losing money for 10 10-year holding period is almost zero. 
   • The average return for 10 year holding period is 11.45% and the median return is 11.26%
   • The maximum return achieved for 10 year holding period is 17.81%, between 2003 and 2013.
   • In the last decade (2014-2024) NIFTY 50 gave a return of 12.17% CAGR, which is better than the average and median return of the 10-year holding period. 
4. 20 Year Return
   • In the last 20 years, the NIFTY 50 gave a return of 14.85% CAGR.
   • The average and median returns in 20 year investment period are 12.26% and 11.81% respectively.
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NIFTY 50 P/E Ratio In Last 25 Years

The data for the analysis is sourced from the NSE website. The Price-to-Earnings (P/E) ratio of an index can be used for evaluating the overall valuation of the companies listed within that index. The calculation is very simple divide the current price level of the index by the total earnings per share (EPS) of all the companies included in the index.

Here's a simple explanation:

• Price (P): This refers to the current price level of the index, normally represented by its closing price.
• Earnings (E): This is the sum of the earnings per share (EPS) of all the companies in the index, usually measured over the past 12 months (trailing twelve months or TTM).

The P/E ratio provides insight into how much investors are willing to pay for each unit of earnings in the index. A higher P/E ratio often suggests that the market anticipates significant future growth, while a lower P/E ratio might indicate that the index is undervalued or that growth expectations are more modest.

 

 

1. Current P/E of NIFTY 50 Index:  As of 28 June 2024, the P/E ratio of the NIFTY 50 Index was 22.85 where as the historical average of the same is 20.83, showing slight overvaluation. The red line represents the average P/E ratio over the period, providing a baseline to compare current valuations against historical norms. The green line represents the 200-day moving average of the P/E ratio, smoothing out short-term fluctuations and highlighting long-term trends.

2. P/E Ratio Peaks: The P/E ratio has reached several peaks, notably around 2000, 2008, and 2020, indicating periods of high market valuation relative to earnings.

3. 2008 Financial Crisis: A significant drop in the P/E ratio is evident during the 2008 financial crisis, reflecting a sharp decline in market valuations.

4. 2020 Pandemic Spike: The chart shows a notable spike in the P/E ratio around 2020, likely due to market reactions to the COVID-19 pandemic. Due to the lockdown the sales and earning fell which did not get reflected in 12 months' trailing earnings of companies, however, the NIFTY 50 recovered due to anticipation of earning growth.

5. Volatility: The P/E ratio has shown significant volatility over the years, with several sharp rises and falls reflecting changing market conditions.

6. Post-2020 Trends: After the 2020 peak, the P/E ratio shows a downward trend followed by stabilization, suggesting that companies' earnings going back to pre-pandemic levels.

7. Consistent Growth Phases: Periods of consistent growth in the P/E ratio can be observed, particularly from 2003 to 2007 and 2016 to 2019, indicating phases of sustained market optimism.