NIFTY Total Return Index

Dividends now represent 27% of the total return index of the NIFTY since the start of 2000. What this means is that assumming that the changes in index constituents are pari passu, if the dividends issued by the component companies of NIFTYwere reinvested/reconsidered back into the NIFTYcalculations then the value of the index would roughly be around 6,728 (27% more than the current NIFTY value of 5295, as at 1Apr’12). The Total Return Index (TRI) tracks the capital gains of the NIFTY stocks and assumes that any cash distributions, such as dividends are reinvested back into the index. The German stock market DAX is an example of a TRI while NSE distributes historical values of its TRI here.

I downloaded NIFTY TRI and played around with the data trying to find some patterns and inferences. The first chart is a simple compare of the NIFTY TRI (dark green line) against the NIFTY (dark brown line) with the difference between them shaded in light green. The gap between the two indices is also shown in the second chart. I am unable to make any meaningful conclusion from this chart.

The third chart is interesting. This shows a comparision of the continuously trailing 1 yr returns of the NIFTY TRI compared with the trailing 1 yr returns of the NIFTY since 4Jan2001. Given that the NIFTY continuous 1 yr returns have swung widely over a +120%  to -50% range during this period, the difference between the two lines is not noticeable at all. The small footer chart shows the difference between the two series of 1 yr returns. What came out was that the trailing 1 yr returns of the NIFTY are always greater than the trailing 1 yr returns of the NIFTY TRI. Duh. This did not make any sense to me. I guess the major insight, though unrelated to the topic of the post, is the amazing wild swings in the trailing 365 day returns of the NIFTY. Can anyone spell V  O  L  A  T  I  L  I  T  Y for me? 🙂