What are your chances of retiring with ₹100 crore?

A popular video of a speech given by market guru Ramesh Damani, titled ‘how to make ₹100 crore by investing ₹10 lakh’, shows him saying that money invested in equities will double 10 times over a span of 30 years. This translates to a CAGR (compound annual growth rate) of 26%.

A tweet by another market commentator and social media influencer says that a monthly SIP (systematic investment plan) of ₹10,000 to ₹20,000 can compound to ₹100 crore in 30 years. Such a growth implies a CAGR of 24% on the SIP. Mint looked at some numbers about how realistic such projections are, with the help of Anish Teli, founder of QED Capital.

The Sensex value was 982 on 2 January 1991 and it is currently (as of 5January 2021) at 60,223. This translates to a CAGR of 14.7%. However, before extrapolating this figure into the future, one must remember that the past 30 years have seen an unprecedented level of economic growth in India, as the country benefited from a series of reforms launched in 1991. Proponents of the ₹100 crore dream often argue that you can do better than the index by picking the right stocks. In our study, we looked at this claim in depth. We took a look at just how many individual stocks have crossed the 25% threshold over the past 10, 15 and 20. Our results also account for the companies that were listed in those respective periods but no longer exist at present (survivorship bias).

Three scenarios

Going back 20 years takes us to the start of 2001. This was at the end of the dot com bubble, when the stock market was available at mouth-watering valuations. Out of a sample of 621 companies, 209 gave a return of more than 25%, a startling figure. In other words, about one in three stocks gave returns that Teli described as unicorn returns. Going back 15 years took us close to the peak of the 2003-07 bull run. In this case, from a sample of 918 listed companies, 53 have given a return of more than 25%. This translates to about 1 in 20 (5% of surviving listed companies) that have delivered unicorn returns. Finally, going back 10 years gives us a set of 291 companies out of 1,445 beating the 25% hurdle or 1 in 5. If your chances are somewhere between 1 in 3 and 1 in 20 of making a 25% plus return, the ₹100 crore dream seems rather plausible.

However, a host of factors do not find their way into past data. India’s inflation rate has been gradually coming down from the double-digit levels of the 1990s. Inflation eventually feeds into nominal GDP growth and hence pushes up the stock prices of companies. Third, there is the problem of your own behavioural biases and weaknesses.

According to Kirtan Shah, founder and chief executive officer, Credence Wealth Advisors, “Firstly, most investors cannot identify the right stocks or they do not buy at the right valuations. Second, when market downturns happen, very few have the stomach to see hefty drops in their portfolio value. Third, not all stocks will do equally well. Some will generate outsized returns while others will stagnate and this will skew your portfolio and make it lopsided and risky. You must then have either the expertise to rebalance or the confidence to let your winners compound,” he added.

Teli also highlighted the impact of market cycles and valuations of the starting point of your investment. These can make a huge difference to your returns, even over the long term. “The 20-year period starts in January 2002 which in hindsight was as well one could have timed the market post the dot com bust. In this period, almost a third of companies hit this hurdle of 25%. The second period starts from January 2007 which in hindsight was close to the peak prior to the global financial crisis. If one invested in this period, only 5% of companies met the hurdle of around 25%.”

Taxes can also affect returns. In his speech, Damani pointed out that investors like him made big returns at a time when long-term capital gains (LTCG) on stocks was zero. In 2018, this was upped to 10% and future governments could increase it further. Last, but not the least, ₹100 crore in 30 years translates to ₹17.4 crore in today’s money assuming a 6% rate of inflation. This is still a large corpus, but not the mouth-watering sum that initially seems to be the case.