Why 15-20% Equity Returns May Be a Thing of the Past, Says Rajeev Thakkar

Investors chasing double-digit euphoria in the Indian equity markets may need to recalibrate their expectations. Rajeev Thakkar, CIO of PPFAS Mutual Fund, warns that the era of "get-rich-quick" returns is fading as corporate profit growth moderates.

The Shift Toward Lower Nominal Returns

For years, many Indian investors have entered the equity market expecting consistent returns in the 15-20% range. However, Rajeev Thakkar, who oversees ₹1.62 lakh crore in assets, suggests this mindset could lead to significant disappointment. He argues that because corporate profits are not growing at the breakneck speeds seen previously, investors must get accustomed to lower nominal returns.

Thakkar suggests a more pragmatic approach to wealth creation. Instead of chasing unrealistic highs, he advises investors to adopt a long-term horizon of at least five years. In a scenario where fixed-income instruments yield around 7%, a realistic and successful equity target might be in the 10-12% range.

While the Nifty 50 sits at reasonable multiples of around 20 times earnings, Thakkar warns that the market is not uniformly priced. He notes that while a segment of the market remains attractive and cheap, another segment continues to look "frothy." These overvalued stocks are likely to face either time corrections or price corrections to align with fundamental realities.

He specifically highlights two areas of concern:

  • Hyper-competitive sectors: The quick commerce and food delivery spaces are seeing massive revenue growth but struggling with profitability due to intense competition between listed players, MNCs, and large Indian conglomerates.
  • High-multiple consumer stocks: Companies trading at 80, 90, or even 100 times earnings are pricing in perfect future outcomes. Thakkar warns that even minor setbacks in these companies could result in significant capital erosion for investors.

The Strategic Importance of Global Diversification

Addressing the debate on domestic versus international investing, Thakkar emphasizes that investing abroad is not merely about chasing "alpha" (extra returns), but about risk management. He points out the historical volatility of single-market exposure, noting that while India outperformed the US from 2000 to 2010, the US markets significantly outperformed India over the last few years.

Currently, PPFAS is limited by RBI regulations, which constrain global exposure. Thakkar reveals that if these restrictions were lifted, the fund would likely aim for a 30% allocation to global stocks. A combination of Indian and global assets, he argues, creates a smoother investment journey by reducing the "lumpiness" caused by domestic market cycles.

## Key Takeaways

  • Realistic Expectations: Investors should pivot from expecting 15-20% returns to a more sustainable target of 10-12% for long-term wealth creation.
  • Avoid Valuation Traps: High-multiple consumer stocks and hyper-competitive sectors like quick commerce carry significant risks due to elevated valuations and thin profit margins.
  • Diversification as Risk Management: Global investing should be viewed as a tool to reduce portfolio volatility rather than just a way to seek higher returns.