IME Capital Investment Queries provide answers to common investor queries that are directly written by IME Capital’s Central Investment Team. This helps ensure centralised, common and transparent communication of our thoughts to all investors (& potential investors) of IME Capital, and helps mitigate against the disparate communication common in the wealth management industry. Please note, that the answers to these queries can be time/market-condition sensitive, or only applicable to specific types of investors.
Written by IME Capital’s Investor Desk on March 9, 2025 | Category: Equity
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.