Why Long-Term Returns Look Slower Than India’s Growth

Market Update - Wednesday, 24 Dec

Markets remained largely stagnant and dull, with some parts giving up ground while the overall environment stayed flattish. A recent news item highlighted that retail investors have cashed out of the cash markets for the first time in 2025 since the COVID-19 period.

While this has raised concerns about domestic supplies shrinking, the data suggests otherwise. Money flow continues to move steadily through domestic fund routes, which remains a very stable trend.

• Looking at the specific market charts, the Nifty was very flat for the second day in a row, closing down 0.13%.

• Nifty Junior was down 0.2%, mid-caps fell 0.47%, and Bank Nifty decreased by 0.2%, while small-caps saw a tiny gain of 0.06%.

• While stocks were quiet, gold and silver continued to make new highs. Gold reached 1,37,50,000 rupees per kilogram, and silver reached 2,20,745 per kilogram.

Other Market Triggers

• The Nifty heat map showed losses for Reliance, Tata Steel, Hindustan Unilever, Tata Consumer, Dr. Reddy’s, Sun Pharma, and SBI.

• On the positive side, Shriram Finance, Bajaj Auto, and TCS saw small gains.

• In the Nifty Next 50, commodities like Hindustan Zinc and Vedanta ran up, as did Chola Finance and Shree Cements.

• Losses were noted in oil majors, United Spirits, Siemens, and some public sector banks.

• In the mover of the day segment, VIP Industries jumped 11.6% following a significant block deal where 26% of the equity changed hands.

U.S. Market Update

• In the U.S. markets on the previous day, the NASDAQ and S&P 500 moved up nearly half a percent, while the Russell 2000 broader index was down 0.7%.

• Stocks like Nvidia, Broadcom, Amazon, and Alphabet saw upward movement. It should be noted that some of these stocks may be part of specific company investment strategies, though these are not recommendations.

What to watch next ?

• Investors are encouraged to understand that the seeds of the next bull run, whether it occurs in 2026, 2027, or 2028, are being sown right now.

• Many people believe they will buy once the bull run starts, but history shows this rarely happens for over 99% of people. This is due to anchoring bias; once an investor sees a stock at 100 rupees and it quickly moves to 125, they often find themselves unable to buy.

• True investments must be made during the consolidation phase. Similar to the growth of a bamboo tree, which requires years of waiting before it suddenly shoots up, market participants must be patient.

• It is a mistake to invest for 12 to 15 months and then give up just as the market is potentially ready to take off.

• Staying invested for the long term is the only reliable way to generate substantial wealth, even if these principles are often ignored by the majority.

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What To Read This Week ?

The Nifty "Lost Decades"? Unpacking the 17-Year Journey

The Case for Underperformance: 10% CAGR?

According to the data shared below, the Indian economy grew fourfold over the last 17 years, yet the Nifty 50 index only grew fivefold.

On the surface, a 10% CAGR (Compound Annual Growth Rate) over nearly two decades seems underwhelming for an emerging economy.

When we look at the underlying fundamentals, the situation gets more intriguing:

• Corporate Earnings: Nifty’s earnings (EPS) have grown at roughly an 8% CAGR.

• GDP vs. Corporate Growth: If the national economy is growing at 6–8% in real terms, why aren't our largest companies significantly outpacing that growth?

The "Timing Trap": The Importance of Start and End Points

While the 10% figure sounds bleak, we must consider the "Starting Point Bias." 2008 was a year of extreme market elevation (just before the Global Financial Crisis).

• Elevated Start: Starting the calculation from the 4,700 level in 2008—a period of high valuation—naturally drags down the long-term CAGR. Historically, if you adjust the starting point slightly, Nifty’s long-term average sits closer to 12%, which is considered a healthy benchmark for a large-cap index.

• The 2025 "Low": The analysis used a Nifty level of 23,500 for the year 2025. However, this was nearly the low point of that year. By the end of 2025, the index recovered to approximately 25,800.

Using a "High Start" and a "Low End" creates a targeted narrative of gloom that might not reflect the full picture of wealth creation.

The Broader Market vs. The Nifty 50

One critical issue raised is whether the Nifty 50—representing the 50 largest companies—is still the best barometer for "India's growth."

It is highly likely that while the heavyweights in the Nifty 50 faced structural hurdles, the broader market (Midcaps and Smallcaps) captured a larger slice of the economic expansion. Investors who diversified beyond the top 50 stocks might have seen significantly higher returns than the 10% headline figure.

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