Returns from major asset classes trail inflation

Equities (9.9% returns so far) is the only asset class coming close to CPI inflation of 10.9%

For the first time in five years, returns from gold and real estate have lagged Consumer Price Index (CPI)-based inflation. Returns from gold and real estate stood at -5.4 and 0.9 per cent, respectively, while fixed deposits returned 7.74 per cent in the April-October period. For the same period, CPI inflation stood at 10.9 per cent, according to data from the Urjit Patel committee report on monetary policy.

Between 2009-10 and 2012-13, real estate and gold saw handsome returns. On an average, returns from these two assets have stood at high double digits. In the last five years, bank deposits returned 6.8-8.3 per cent, lower than other asset classes.

“For four consecutive years — between 2009-10 and 2012-13 —, average deposit rates remained below CPI inflation, while annual returns from gold and real estate exceeded CPI inflation for most of these times, and by a significant margin. With average annual CPI inflation touching double digits or staying just underneath for the last six years, bank deposits have been yielding negative returns in real terms,” said the Urjit Patel committee report.

This financial year, stocks, especially those of export-oriented companies (in the second half of this financial year), have fared better than other asset classes. Compared to April, the S&P BSE Sensex has risen 9.93 per cent so far, a tad lower than the CPI inflation of 10.9 per cent.

Ajay Bagga, head (private wealth management), Deutsche Bank India, says: “Traditionally, gold and real estate have been used to hedge against inflation; recently, these have been under-performing consumer inflation. Also, gold and real estate consumption has been lower. But if you look at Wholesale Price Index-based inflation, as food comprises of a bulk of CPI, returns are better on a real-term basis such as from tax-free bonds.”

In the last five years, while most asset classes have beaten consumer inflation at one point or another, fixed deposits have always been laggards, fetching no real returns for the retail investor. Through the past five years, returns from equity have been choppy, given the high volatility in the Sensex. But in the last two years, equities have been returning an average of nine per cent.CPI inflation, which had shot up to 11.2 per cent in November 2013, now stands at 9.87 per cent.