While equity markets can be highly volatile in the short-term, over the longer-term performance tends to be in-line with the growth of the underlying economy. This context, helps explain the 12-15% IRR that is often considered a good benchmark for longer-term equity returns.

To explain this further, real-GDP growth in India is expected to compund at 6-8%. The composition of the market is superior to that of the overall economy (higher share of higher-growth services & lower share of lower-growth agriculture), which combined with the shift towards larger organised players, can lead to market GDP outperforming overall GDP by 1-2% (real market GDP should grow in the 8-10% range). Taking inflation into account (4-5%), the 12-15% IRR of Indian equities is clearly achiveable over the medium-to-longer term.

However, it is important to note that this 12-15% is a good representation of potential long-term equity returns for a diversified equity portfolio, the same does not hold true for equity in a single company where the companies own growth trajectory can be quite different from overall GDP growth.