This article provides an insightful overview of the Nifty Index performance, highlighting key positive and negative years since 1998. And, how various factors including economic growth, global crises, currency fluctuations, foreign direct investment (FDI), inflation, and government policies and reforms, have shaped the trajectory of the Index.
Positive Years:
1999:Recovering from economic sanctions post India's nuclear test, Asian financial and Russian debt crisis ; India's economic reforms eased inflation and increased GDP and Foreign Investment ; significant increase in technology and telecom sectors stock price ;Y2k bug acted as a catalyst for IT service demand
2003: Swift recovery from the dot-com bubble burst; global economy grew by 3.6% (IMF) with India's GDP growth rate at 7.9% (World Bank); reduction in interest rates, with the US Federal Reserve cutting rates to 1.0% and the Reserve Bank of India (RBI) reducing the repo rate to 5.0% from a high of 6.5% earlier in the year; acceleration of technology and services industries in India, with IT sector revenues increasing by 26% (NASSCOM); FDI inflows to India reached $4.3 billion, a 17% increase from the previous year (UNCTAD); India's merchandise exports expanded by 19.2% (Ministry of Commerce and Industry).
2005 to 2007: Strong global economic growth, with the world GDP growth averaging around 4.9% (IMF); India's GDP growth rate averaged 9.4% (World Bank) over the three years; expansion of IT and infrastructure sectors, with IT sector revenues growing at an average annual rate of 30% (NASSCOM); FDI inflows to India surged from $8.6 billion in 2005 to $34.8 billion in 2007 (UNCTAD); INR appreciated from ~ 44/USD to 39.4/USD bw 2005 to 2007 (RBI)
2009: Recovery from the global financial crisis; India's GDP growth rate at 7.9% (World Bank); government stimulus packages in India amounting to around $18.7 billion (1.5% of GDP) (Ministry of Finance)
2012: India's GDP growth rate at 5.5% (World Bank); implementation of economic reforms such as allowing FDI in multi-brand retail (up to 51%) and aviation (up to 49%); strong performance in agriculture (3.6% growth) and services sectors (8.1% growth) (Central Statistics Office); increased government spending on key infrastructure projects like the Delhi-Mumbai Industrial Corridor (DMIC) and the National Highways Development Project (NHDP).
2014: Modi government comes to power; India's GDP growth rate at 7.4% (World Bank); pro-business reforms and policies such as the launch of Make in India initiative and the easing of FDI norms; increased FDI inflows to $34.9 billion, up by 22.6% from the previous year (UNCTAD); growth in IT, manufacturing, and services sectors; development of Smart Cities and Digital India initiatives
2017: Implementation of the Goods and Services Tax (GST), streamlining indirect taxation; India's GDP growth rate at 7.0% (World Bank); continued FDI growth, reaching $44.9 billion (UNCTAD); formalization of the Indian economy; rise in digital transactions post 2016 demonetization; increased infrastructure spending on projects like the Bharatmala Pariyojana (Road Logistics) and Sagarmala (Ports)
2021: Economic recovery from COVID-19; rapid vaccination drive - 30% of the population fully vaccinated by September (Ministry of Health and Family Welfare); growth in IT, e-commerce, and healthcare sectors; increased foreign investment with FDI at $84.8 billion-FY2022 (Ministry of Commerce and Industry); government stimulus measures like Aatmanirbhar Bharat package(~15% of GDP) (Ministry of Finance); focus on self-reliance and domestic manufacturing through the Production-Linked Incentive (PLI) scheme.
Negative Years:
1998: India's nuclear tests led economic sanctions from US and Japan; Asian financial crisis and Russian debt crisis affected global markets; India's GDP growth rate slowed to 6.5% (World Bank); decline in global trade, with India's merchandise exports growing by only 1.6% (Ministry of Commerce and Industry); increased inflation in India (average annual rate -13.2%) (RBI); weakening of the Indian rupee, with the exchange rate going from around INR 36 to 41 per USD within the year (RBI)
2008: Sub-prime crisis ; low GDP growth ; Sharp decline in FDI
2011: Eurozone debt crisis, impacting global financial markets; high inflation rate, averaging 8.9% for the year (RBI); Low GDP growth rate and high fiscal deficit (5.9% of GDP) (Ministry of Finance); challenges in implementing policy reforms
Resilient Year:
2020: Year 2020 is considered in a separate category because this year nifty managed to increase 14.9% in the middle of a global pandemic. Thus the events here are sub categorized into adverse and favorable.
Adverse: COVID-19 pandemic; GDP contracted by 7.3%; Nationwide lockdowns and restrictions
Favorable: Massive economic relief package, Aatmanirbhar Bharat Abhiyan; repo rate at 4.0%
NIFTY Index CAGR
Nifty CAGR on 1st Jan 2023 at Index price of 18105.3 would be as follow from the following investment dates:
31st Dec 1996 (Index-899.1) (Tenure:26-Years): 12.2%
30th Dec 1999(Index-1480.45)(Tenure:23-Years): 11.5%
30th Dec 2010(Index-6134.5)(Tenure:12-Years): 9.4%
29th Dec 2017(Index-10530.7)(Tenure:5-Years): 11.4%
30th Dec 1999(Index-1480.45)(Tenure:27-Years): 11.8%
Kindly Note, here point 3 has the lowest CAGR but one of the main contributer here is the 1st year i.e 2011(calender yr) index change was -24.6%.
Now, if a person would have invested a year later i.e start of 2012(Index-4624.3) and not at 6134.5. She would have yielded a CAGR of 13.2% as on 1st Jan 2023.The above data gives an abstract high level understanding of NIFTY50 Index returns.
We generally return ~9% over and above NIFTY CAGR by deploying quantitative risk management using Index derivatives.