India is a ATM Machine !

July 11, 2024 3 min read

In this blog, let us deep dive into an interesting analysis between the stock market growth and the GDP. The orange line represents the Nifty 50, and the blue line represents the CNX 500. Over the past 20 years, Nifty has risen by 1382%, while the CNX 500 has grown by 1523%. In contrast, the white line represents India’s GDP, which has grown by 529% over the same period. This data is provided by the government and highlights the significant difference between market performance and GDP growth.

Market Performance vs. GDP Growth

The chart shows that the stock market generally pulls away from GDP growth, except during significant market crashes like the 2008 financial crisis or the COVID-19 pandemic. On average, the market has grown spectacularly compared to GDP. If GDP has increased by 500% over 20 years, benchmark portfolios have grown by almost 14-15 times, reflecting about a 14% compound annual growth rate (CAGR). This is about 5% higher than the GDP growth rate.

Future Growth Projections

If India’s GDP continues on a similar growth trajectory over the next 20 years, we can expect benchmark indices to grow similarly. This means potential growth of around 20 times or even more. For someone who is 30, 35, or 40 years old and looking at retirement in 20 to 30 years, this translates to a possibility of their portfolio growing 20, 30, or even 40 times its current value.

The key takeaway here is the simplicity of achieving these returns. You only need to achieve benchmark returns or slightly better. By doing this, you can ensure significant growth over time. The task at hand is straightforward: stay aligned with the market and allow your investments to grow naturally.

Importance of Beating Inflation

The primary goal is to beat inflation. If your returns are consistently higher than inflation, you are on the right path. The next goal is to beat the benchmark. Consistency in investing and sticking to a strategy that outperforms the benchmark is crucial. This approach ensures long-term compounding and allows you to reap the benefits of a growing market.

Long-term Compounding Benefits

In the Indian market, with a long-term horizon of 20 to 30 years, the potential for growth is immense. The power of compounding over such a period can yield extraordinary returns. Rather than focusing on short-term gains or comparing returns with others, aim for consistent, inflation-beating, benchmark-beating performance. This will ensure you maximize the benefits of long-term compounding.

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July 12, 2024 by Weekend Investing

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    India is a ATM Machine !