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

The era of "get-rich-quick" through Indian equities may be winding down, according to industry veterans. Rajeev Thakkar, CIO of PPFAS Mutual Fund, warns that investors chasing double-digit high returns must recalibrate their expectations to avoid significant disappointment.

A Reality Check on Equity Returns

As markets navigate post-geopolitical volatility, the primary concern for investors is the sustainability of high returns. Managing ₹1.62 lakh crore of investor capital, Rajeev Thakkar suggests that the expectation of 15-20% annual returns is increasingly unrealistic.

The core reason lies in the slowing growth of corporate profits. Thakkar advises that a more pragmatic approach is necessary: if fixed-income instruments are yielding around 7%, an investor should be satisfied with a 10-12% return from equities. He emphasizes that a long-term horizon of at least five years is essential to navigate the inevitable cycles of the market.

Valuations: The Mix of Value and Frothiness

While much of the market has undergone time or price corrections, Thakkar notes that valuation excesses have not entirely vanished. The Nifty currently trades at approximately 20 times earnings, suggesting the broader market is at average multiples.

However, he highlights two specific areas of concern:

• Hyper-competitive sectors: The quick commerce and food delivery spaces are seeing intense competition between listed players, new entrants, and large corporate houses. While revenue is growing, the intense rivalry makes maintaining cash flows and profitability extremely difficult.
• High-multiple consumer stocks: Companies trading at 80, 90, or even 100 times earnings are a major risk. These stocks have already priced in every possible favorable outcome, leaving zero margin for error if even minor headwinds arise.

The Case for Global Diversification and Cash Reserves

Addressing the criticism regarding PPFAS’s tendency to hold higher-than-average cash, Thakkar defends the strategy as a deliberate stylistic choice within Flexi Cap mandates. He argues that maintaining liquidity is a valid way to manage risk rather than blindly deploying 100% of capital at all times.

Furthermore, he sheds light on the necessity of international investing. While Indian markets represent only 3-4% of the global market cap, Thakkar argues that investing abroad is not just about seeking "alpha" (extra returns), but about risk reduction. By diversifying across geographies, investors can smooth out the "lumpy" returns often seen in a single-country portfolio. He notes that while India outperformed the US from 2000 to 2010, the trend reversed significantly in recent years, proving that a global mix is vital for a smoother investment journey.

Key Takeaways

• Tempered Expectations: Investors should pivot from chasing 15-20% returns toward a more realistic target of 10-12% to align with current corporate profit growth.
• Watch Out for Overvaluation: Extreme caution is advised regarding consumer-facing stocks with massive P/E multiples and highly competitive quick-commerce players.
• Diversification is Risk Management: Global investing should be viewed as a tool to reduce portfolio volatility rather than just a way to find higher returns.