Madhusudan Kela’s reality check: Expect 10–12% market returns, hunt these 'hidden gems'

Veteran investor says headline indices may cool, but disciplined stock-picking and AI-led productivity gains offer long-term upside

• Madhusudan Kela predicts 10–12% annual equity returns.
• He urges investors to embrace volatility as an opportunity
• Focus on disciplined investing and long-term compounding

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Veteran investor Madhusudan Kela expects India’s broad equity market returns to moderate to 10–12 percent annually, signalling a more measured phase for benchmark indices.

Speaking at a summit, as cited by Economic Times, Kela said while volatility has intensified amid global and domestic developments, it should be viewed as an opportunity rather than a risk.

“Volatility is not the enemy, it is the entry point,” he said.

Recent weeks have seen heightened swings driven by the Union Budget, the India–US trade deal, sharp movements in gold and silver, and volatility linked to AI-related sell-offs.

Kela described such turbulence as fertile ground for differentiated returns. “This noise is what creates opportunity. This noise is not a distraction,” he said, as cited by Economic Times. “You rarely make money if you are with the crowd.”

His central message: focus on resilient entrepreneurs and allow compounding to work over time.

With nominal growth moderating and mature sectors dominating benchmarks, Kela believes index returns will likely settle into a narrower range.

The real opportunity, he argued, lies in identifying 'hidden gems,' companies and themes, particularly those leveraging AI applications, that can improve productivity and expand margins over time.

His investing framework emphasises the 'jockey,' the promoter or leader driving the business. “Am I able to really identify someone who will be able to drive it and who will not get distracted?” he said.

Kela credited India’s retail investors for strengthening the market’s structure. Systematic investment plan (SIP) flows have continued even as foreign institutional investors turned net sellers.

“They have been the real hero of this last bull run,” he said, as cited by Economic Times.

He added that equity investing has shifted from speculation to mainstream wealth creation, noting that at least 13 crore Indians now view equities as a long-term asset class.

To illustrate long-term potential, Kela cited an example: investing Rs 11,000 per month in a mutual fund over 50 years could grow into Rs 100 crore, assuming returns align with historical averages.

The broader takeaway, he suggested, is faith in disciplined investing and in India’s structural growth trajectory.

Unless a severe 'black swan' event disrupts sentiment, he expects domestic capital flows to expand significantly over the next decade, irrespective of foreign buying patterns.

While acknowledging concerns about job disruption in IT services, Kela drew parallels with past technological shifts, saying technology has historically improved productivity and living standards.

He sees India’s expanding Global Capability Centres helping offset potential job losses in traditional outsourcing. However, he advised caution on IT stocks until earnings visibility improves.

For long-term investors, the message remains clear: stay disciplined, embrace volatility, and focus on compounding rather than chasing short-term moves.