Dreaming of 25% returns? Market guru Nilesh Shah says you’re in for a shock

In a candid conversation with veteran journalist Vikram Chandra on the Hook podcast, Nilesh Shah, Managing Director of Kotak Mutual Fund, offered a grounded yet crucial reality check for retail investors. His message was loud and clear: those expecting 20–25% annual returns from the Indian stock market may be living in a bubble.

Speaking about the recent bull run that has seen Indian equity markets outperform many global counterparts, Shah explained that such high returns are not sustainable in the long term. “Everyone thinks 20-25% return is their birthright. My feeling is that they are all going to get disappointed,” he said.

Valuations Have Peaked- Now Only Earnings Can Drive Returns

Vikram Chandra pointed out how Indian markets now command some of the highest price-to-earnings ratios in the world. Shah agreed and emphasized that valuations have already reached premium levels, making further expansion unlikely.

He elaborated, “So my steady-state scenario is that valuations are unlikely to expand. We are already at premium valuation. How can it be expanded further?”

According to Shah, the base case now is that returns will stem solely from corporate earnings growth, which he expects to be in the high single-digit to low double-digit range.

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Realistic Returns in an Inflationary World

Shah also linked return expectations to India’s current inflation rate. “Where inflation is 4–5%, you can’t expect 25% return in equity on a sustainable basis. Moderation of return expectations is the most critical thing,” he cautioned.

His final advice? Hope investors don’t enter the market with wrong expectations- because inflated optimism often leads to poor decision-making and eventual regret.

This straight-talk from one of India’s top fund managers serves as a crucial reminder for investors: the era of supernormal returns may be behind us, and patience, realism, and discipline are the need of the hour.