Understanding Nifty Returns in Rupee vs. Dollar Terms
When evaluating the performance of the Nifty, it’s common to focus on returns in rupee terms. However, looking at these returns in US dollar terms offers a more nuanced perspective, especially when comparing India’s performance on a global scale. The difference between rupee and dollar-denominated returns is significant and has long-term implications for global competitiveness and purchasing power.
Rupee Returns vs. Dollar Returns
In rupee terms, Nifty has consistently delivered solid returns. For instance:
2024: Nifty returned approximately 9% in rupee terms.
2024 (Dollar Terms): When converted to US dollars, the return drops to 5.8%.
This discrepancy arises primarily due to the depreciation of the rupee against the dollar, which has been a consistent trend over the past few decades.
The Long-Term Impact of Rupee Depreciation
The rupee has depreciated significantly against the US dollar, losing over 80% of its value in the last 30-40 years. This depreciation affects long-term returns:
10-Year Returns: Nifty’s rupee-based return was 182%, but in dollar terms, it was only 100.8%.
Since 1990: Nifty returned a staggering 6700% in rupee terms, but only 1283% in dollar terms.
The gap underscores how much of the perceived gains are offset by the rupee’s devaluation.
Why Dollar-Based Returns Matter
Global Comparisons: Dollar terms allow for comparisons with global benchmarks, such as the S&P 500, or assets like US dollar gold and international real estate.
Purchasing Power: Declining currency value erodes purchasing power for overseas expenses like education, travel, or imports. Even if Nifty grows in rupee terms, a weaker rupee means these expenses become increasingly unaffordable.
Global Competitiveness: For India to compete globally, maintaining or growing purchasing power relative to the US dollar is critical.
When Rupee Returns Are Sufficient
If your investments and expenses are entirely within India, rupee-based returns may suffice. For instance:
Comparing Indian equities with Indian real estate or gold.
Evaluating debt funds and other rupee-denominated assets.
However, if you aspire to global investments, education, or opportunities, understanding returns in dollar terms is essential.
Key Insights for Investors
Consider Both Views: Evaluate your portfolio in both rupee and dollar terms to get a comprehensive view of your financial health.
Hedge Against Depreciation: Diversify your portfolio to include dollar-based or globally hedged assets to protect purchasing power.
Focus on Long-Term Goals: Align your investment strategy with your long-term objectives, especially if they involve overseas expenses.
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