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

_{Published on: 30 Mar, 2025 12:00}

 

1. A longer investment horizon curtails the chances of negative returns. If someone had 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 11.2% (CAGR).

 

 

The NIFTY 50, India's premier stock market index, has traversed a remarkable journey since its inception, characterized by periods of explosive growth, swift corrections, and steady resilience. Historically, the average 1-year return has been an impressive 20.4%,  underscoring the market's potential for long-term wealth creation. 
Despite the challenges posed by the global pandemic, the Indian stock market has demonstrated remarkable buoyancy, driven by policy reforms, fiscal discipline, and a burgeoning consumer market. The NIFTY 50 has consistently outperformed expectations, with Many investors reaping substantial returns. The market's ability to absorb shocks and rebound strongly has instilled confidence among investors, both domestic and foreign.
In recent times, the NIFTY 50 has registered impressive returns, with many investors benefiting from the market's upward trajectory. This growth momentum is expected to continue in the long run, driven by factors such as India's demographic dividend, increasing financialization, and the government's focus on infrastructure development. As the Indian economy consolidates its position as one of the world's fastest-growing major economies, the stock market is poised to play a pivotal role in channeling savings into productive sectors.
Today, Indian retail investors are increasingly shedding their risk aversion, and embracing the stock market as a viable investment avenue. The proliferation of digital platforms, financial literacy initiatives, and regulatory reforms have contributed to this shift. As investors seek to diversify their portfolios and tap into India's growth story, the NIFTY 50 will likely remain a key barometer of the country's economic resilience and potential.
Tomorrow's market will likely be shaped by innovative sectors such as technology, healthcare, and renewable energy, which are expected to drive growth and create new opportunities. With its rich history, growing investor base, and favorable economic conditions, the NIFTY 50 is well-positioned to continue its upward march, rewarding investors who stay the course and participate in India's unfolding growth narrative. As the market continues to evolve, one thing is clear: the NIFTY 50 has emerged as a compelling investment destination, offering a unique blend of growth, stability, and potential for long-term wealth creation.

1. 1 Year Return
   • The average 1-year return for NIFTY 50 is 20.39% and the median is 11.73%
   • Between April 1991 and March 1992 NIFTY 50 had an impressive return of 244.28% in a year (NSE provides backdated NIFTY 50 index data)
   • NIFTY 50 has a yearly return volatility of 50.67. In the last 34 years, NIFTY 50 had 21 positive annual returns. 
   • 
2. 5 Year Return
   • 5-year returns are less volatile compared to 1 and 3-year returns.
   • The average return for a 5-year holding period is 11.4% and the median is 11.34%.
   • The chance of losing money in 5 year holding period is around 3 out of 30., Standard Deviation falls to 9.31%, almost one-fifth of 1 year returns standard deviation. 
   • The maximum return for a 5-year holding period is 37.08% CAGR between 2004 and 2008.
   • 
3. 10 Year Return
   • The 10-year return data suggests the chance of losing money for 10-year holding period is almost zero. 
   • The average return for 10 year holding period is 11.2% and the median return is 12.1%
   • The maximum return achieved for the 10-year holding period was 18.27%, between 2003 and 2013.
   • In the last decade (2015-2025) NIFTY 50 gave a return of 9.53% CAGR, worse 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 12.03% CAGR.
   • The average and median returns in 20 year investment period are 12.05%
   • 

 

The data for the analysis is sourced from the NSE website. An index's price-to-earnings (P/E) ratio can be used to evaluate 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 March  2025, the P/E ratio of the NIFTY 50 Index was 21.37 whereas the historical average of the same is 20.87, showing overvaluation. The red line (above image) 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 earnings fell which was not yet 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 return 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. The recent P/E peak was in September 2024, since then it has steadily declined.