Indian markets expected to yield 9-12% returns

Amit Ganatra, Head of Equities at Invesco Mutual Fund, believes that the Indian stock market still offers a good risk-reward ratio. He suggests investors can expect returns between 9% to 12% if they look at long-term earnings growth. The Indian market’s earnings growth slowed over the last year, growing around 12-13%, and is projected to grow at 11% in FY26. Despite this slowdown, the author points out that the market has had healthy returns of over 19% per year for the past five years, boosted by strong earnings. Ganatra notes that the market is facing selling pressure near its highs after falling nearly 6% in February 2025. He cautions that if investors expect returns greater than 12%, the market may need time or price corrections to meet such expectations. Retail investment through mutual funds has been a big support for the market. Recent trends indicate a decrease in investment flows. Ganatra advises that those expecting to see returns similar to the last five years may be disappointed and could reduce their equity investments. However, he views the current market as a buying opportunity for those targeting 9-12% returns. Regarding market valuations, he mentions that the Nifty index currently trades attractively compared to its historical average. Ganatra expects that after some time, earnings will align better with these valuations and offer more attractive investment opportunities. He identifies several growth areas in India, including digitization, manufacturing, and health and wellness. Ganatra also comments that the global economic focus is shifting from inflation to growth, potentially leading to lower interest rates, which could be positive for equities. On the topic of the ongoing trade war, Ganatra believes it will not significantly impact India's growth, as domestic consumption plays a crucial role. Most large Indian companies, however, have global ties and may be affected by international conditions. For new investors, Ganatra advises against setting overly high expectations based on past returns. He emphasizes finding a balance between optimism and caution and suggests looking for investment opportunities amid the market correction across various sectors.