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The holy grail of 13–14% CAGR: Too ambitious or realistic?

The holy grail of 13–14% CAGR: Too ambitious or realistic for Indian stock market investors?
Should you expect a 13–14% CAGR (compound annual growth rate) from the Indian stock market? This question is not easy to answer with a simple yes or no. However, for investors with a horizon of more than 10 years, the target does not seem overly ambitious—especially in an economy like India, the world's fastest-growing major economy, supported by structural positives such as a demographic dividend and the rising participation of retail investors in the stock market.
Equity investing gives healthy returns in the long term. However, because of market volatility, impatient investors with a short-term horizon may often be disappointed.
For example, the Nifty 50 has delivered a negative return of about 2% over the past year. For new investors who entered the market after witnessing the stellar gains that followed the COVID-19 pandemic, in the hope of making quick profits, equities may have come as a rude shock.
But does it make sense to equate the Nifty's short-term performance with its long-term returns? And should you expect linear returns from the stock market, for that matter?
For instance, the Nifty has delivered a CAGR of 13% over the last 25 years, 17% over the last five years, and 10% over the last 15 years.
Is expecting a 14% CAGR realistic?
The Indian stock market is experiencing a rough phase due to US tariffs, foreign capital outflows, and weak earnings. This situation may raise doubts among new and inexperienced investors about whether investing in equities is a wise choice.However, experts say long-term investors must not be worried about the Indian stock market's recent performance and stay committed to their long-term goals. They say a 10–11% CAGR is common and realistic, but even 13–14% is not too ambitious.
"Long-term investors need not worry. The 13-14% CAGR is a long-term average, which typically requires at least a 10-year horizon to achieve. In the context of India, however, there is no risk to the expectation of a 15% CAGR," said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.
Chokkalingam pointed out that structurally, two things always happen: once every three to four years, the market corrects, and roughly once every five years, some exogenous factor—such as global tensions or war or any epidemic or pandemic—occurs.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, also believes that having an expectation of 13-14% CAGR over the long term is logical.
"The Indian stock market has the potential to give that kind of a return over the long term. Policy reforms are in full form now, so growth will come back," said Vijayakumar.
The long-term outlook of the Indian stock market remains positive. The country remains one of the fastest economies and is expected to see sustainable growth over the long term due to the rising middle class, reforms, and the government's focus on infrastructure and manufacturing.
"I don't think there is any risk to the 14% CAGR. There is no major structural challenge that could keep the Indian stock market under pressure for a prolonged period," said Ajit Mishra, SVP of research at Religare Broking.
Mishra said in an economy like ours, which is primarily service-driven and now transitioning toward manufacturing, the manufacturing sector is an area investors can consider for long-term opportunities.
Retail investors should choose the SIP route for healthy long-term returns. This will save them from unnecessary worries about market volatility, which experts can better handle.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
Source: LiveMint
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