So share prices become equal to earnings + sentiment. However, in the short term, it is the sentiment that drives the market. In the long run, equity market returns depend on corporate earnings as earnings rise, prices of shares also rise. To analyse this, let’s understand how equity performs and generates returns. The same story holds true also from Indian perspective, where the market has provided an equal and free-of-cost opportunity to all investors, yet, the majority of them have not been able to get it.
Over last 40 years, investors have historically managed to get less than half the return that was otherwise freely offered by S&P500. A Crisil report of 2017 said the average return of a diversified equity investment in India has been around 18 per cent CAGR since 1997.Īnother report by Dalbar Associates, which compared the returns provided by S&P500 and actual average return attained by investors, found a significant gap between the trajectories of these two returns.
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