Don't get confused by these predictions. Most of them are made never ever to be quoted or even be answerable, as Cherian has very rightly written.
If we, as financial advisors, say that you should expect around 11-12% returns from equity in India, is there a basis to it or is it simply because equity has typically given that returns in the past and we just quote it? Please read the small paragraph below carefully for those who remain confused on it.
Have you checked our bank nifty option tips and if you not, than you are missing big profit on a daily basis.
A company will perform only if it at least grows better than GDP of the country. Similarly, our investments should at least be able to counter the inflation. Also, if we put money in equity, we should at least get 2% extra returns over safer products – otherwise why should I take a risk?
Let me put the nominal figures for these three components as 4% (GDP growth), 5% (Inflation) and 2% risk premium. So, in the long run, I should expect to get about 11% (= 4 + 5 + 2) returns from equity – that is how this number is derived at.
Using this 11%, if Sensex is say 58,000 today, it should grow to 7.87 Lakhs in 25 years. So, if somebody writes that Sensex will hit at least 2 Lakhs mark in 25 years, he is way off the mark on the negative side. To put it in different words, he knows that he will be right for sure. In fact, Nifty should be about 2.3 Lakh in 25 years !!
