Resetting Equity Return Expectations: Beyond the COVID Rally
In recent years, many investors have started expecting equities to consistently deliver 18–20% CAGR. The belief comes from the extraordinary post-COVID rally, when portfolios doubled in less than two years. But here’s the truth: those returns were outliers. Historically, Indian equities have delivered 11–13% CAGR—anything more is like winning a lottery.
In the short run, the market is a voting machine but in the long run, it is a weighing machine.
Benjamin Graham
American economist & investor
The COVID Boom
In March 2020, Nifty hit 7,610. By September 2021, it had doubled. ₹10 lakh invested then could be worth ₹20 lakh in just 18 months—gains that normally take 6–7 years. Suddenly, 30–40% annual returns felt “normal.” Social media buzzed with stories of easy money.
But it wasn’t normal. That rally was fuelled by:
- Rock-bottom interest rates
- Trillions in stimulus
- Savings redirected to markets during lockdowns
- Central banks propping up economies
It was the perfect storm—and storms don’t last.
The Investor Frenzy
Demat accounts exploded—from 4 crore in March 2020 to 20 crore by mid-2025. New investors, lured by quick gains, jumped in. Everything was going up—large caps, small caps, even penny stocks—creating an illusion that stock-picking was easy.
Back to Reality
Markets eventually cooled. Long-term averages reasserted themselves:
- 1-year return (Nifty 50, Aug 2025): ~ 3.2%
- 3-year CAGR: ~ 11.2%
- 5-year CAGR: ~ 16.5% (flattered by the COVID low base)
- 10-year CAGR: ~ 11.9%
That 16.5% looks impressive, but it’s just math. To sustain it, Nifty would need to hit ~36,700 by Aug 2026. If the index stays flat, the rolling 5-year CAGR collapses to ~7.3%.
From Jan 2020 to Aug 2025, Nifty has compounded at ~13%. But from the March 2020 bottom, the CAGR jumps to ~24%. Same market, different base. That’s the “slam bounce” effect—like a ball bouncing extra high only because it was thrown harder.
The Reset
COVID gave us a once-in-a-generation rally, not a new normal. Anchoring future expectations to that period is misleading. The real winners will be those who accept equities as steady 11–13% compounders, align investments with goals, and stay the course even when markets look boring.
In investing, boring is often beautiful.