Market outcomes, the evidence shows, are shaped less by headline growth numbers or popular narratives and more by valuations at entry, the quality and durability of earnings, and how well portfolios are balanced across cycles.
For years, investors have relied on a familiar set of market truths: fast-growing economies deliver superior equity returns, steady inflows prop up markets, and equities always trump gold over the long run. But a closer look at long-term data suggests these assumptions don’t always hold — and, in some cycles, can even mislead. Market outcomes, the evidence shows, are shaped less by headline growth numbers or popular narratives and more by valuations at entry, the quality and durability of earnings, and how well portfolios are balanced across cycles. These conclusions emerge from a recent data-driven analysis published in the latest NETRA report by DSP Asset Managers.
Myth 1: Stocks are always better than gold
DSP’s data shows that gold has beaten equities across every major market so far in the 21st century when measured in local currency terms. Between 2000 and December 2025, gold delivered 14.3% annualised returns in India, marginally higher than 13.3% for equities. In the US, gold returned 11.1%, compared with 8.1% for equities. In Japan, gold returned 13%, more than double equity returns of 5.4%, while in the UK gold delivered 11.9% versus 4.9% for equities.
Across emerging markets like Turkey, equities delivered 20.9% annualised returns, while gold returned 31.5%, an excess of 10.6 percentage points. In markets such as South Korea and China, gold exceeded equity returns by 4.5 percentage points and 4.2 percentage points, respectively.
DSP notes that living through this period with zero allocation to gold would have resulted in materially higher volatility and deeper drawdowns for equity-heavy portfolios.
Myth 2: Gold is the only asset worth owning
Story continues below Advertisement
While gold outperformed equities over long horizons, the report shows this dominance was far from consistent over shorter periods. Over rolling five-year windows since the late 1980s, gold beat equities 50% of the time in India, 23% in the US, 36% in Europe, and 38% in China.
In most markets, equities outperformed gold in a majority of five-year periods, indicating that gold’s role was primarily defensive rather than a persistent return generator.
Myth 3: Diversification reduces returns
DSP’s data suggests diversification improved outcomes rather than diluted them. A multi-asset portfolio comprising 50% domestic equity, 20% debt, 15% international equity and 15% gold, rebalanced annually, delivered equity-like returns with significantly lower volatility across markets.
In India, over the past 20 years, equities delivered 11.7% CAGR with volatility of 21.1%. The multi-asset portfolio delivered a higher 12.3% CAGR, while volatility fell sharply to 11.2%. In emerging markets (USD terms), equities delivered 5.5% returns with volatility of 19.6%, compared with 6.1% returns and 12.6% volatility for the multi-asset strategy.
Myth 4: High GDP growth guarantees strong equity returns
Using 30-year inflation-adjusted data, DSP highlights a weak relationship between economic growth and stock market performance. China recorded 8.8% real GDP growth, but real equity returns of only 3.2%. Malaysia grew at 5.3%, while equities delivered –0.7% real returns, and the Philippines posted 4.1% GDP growth with equities declining 1.7% in real terms.
By contrast, slower-growing economies delivered stronger equity outcomes. The US grew at 2.6%, but equities returned 5.9% after inflation. Canada recorded 2.3% GDP growth with 4.4% real equity returns, while Brazil grew 2.4% and delivered 3.7% equity returns.
Myth 5: India will easily become a $30 trillion economy
DSP estimates India would need to grow at a real CAGR of 8.9% for 25 years to reach a $30 trillion GDP by 2050, assuming a stable rupee-dollar exchange rate. Historical data shows India has crossed 8% real GDP growth only intermittently since FY71.
Over rolling five-year periods, India has come close to that level only once, in FY08. DSP places India’s long-term real growth rate closer to 6%, suggesting that recent high-growth years largely reflect rebound effects rather than a sustained structural shift.
Myth 6: Domestic inflows will keep stocks rising
Between September 2024 and November 2025, cumulative FII and DII inflows of around Rs 4.9 lakh crore entered Indian equities. Despite this, large-, mid- and small-cap indices delivered largely flat returns over the same period.
Flow data shows inflows accelerated following strong past performance and fell once returns stagnated or turned negative, reinforcing the conclusion that flows followed returns rather than drove them.
Myth 7: Today’s top mutual funds will remain leaders
DSP analysed equity mutual fund rankings across multiple rolling three-year periods. Between 60% and 80% of funds that ranked in the top quartile during one three-year window slipped into lower quartiles in the next three years.
In several periods, including 2015–17 and 2017–19, 100% of top-quartile flexi-cap and mid-cap funds failed to retain their ranking.
Myth 8: Index targets provide reliable guidance
Reviewing 25 years of year-ahead index targets, DSP found that the median forecast for the S&P 500 was never negative, even though seven of those 25 years ended with negative returns.
In India, forecast errors frequently exceeded ±10%, particularly during years such as 2008, 2011, 2015 and 2022, highlighting the limits of predictive market targets.
Myth 9: Valuations do not matter in the long run
DSP’s valuation analysis shows prolonged periods where equities underperformed debt due to high starting valuations. After the early-1990s peak, equities took nearly 15 years to outperform debt. Following the 2007–08 cycle, equities lagged debt for over 10 years. Even after the 2018 valuation peak, equities took more than four years to catch up.
Myth 10: Small and midcaps always outperform large caps
While small- and mid-cap stocks outperformed large caps during every bull phase since 2003, DSP’s rolling data shows they lost most of that excess return during subsequent downcycles.
Currently, small- and mid-cap indices are trading with a large rolling alpha over large caps, a phase that historically preceded periods of relative underperformance.
Myth 11: Higher risk always means higher returns
DSP’s beta and volatility analysis challenges the assumption that higher risk guarantees higher returns. Low-volatility portfolios delivered 16.5% returns, compared with 13.3% for high-volatility portfolios, while also experiencing smaller drawdowns and faster recoveries.
Myth 12: SIP timing determines long-term outcomes
Analysing rolling seven-year SIP returns for the Nifty 500, DSP found outcomes clustered tightly regardless of entry point. Median returns ranged between 13% and 14%, whether SIPs were started at market highs, after rallies of more than 20%, or following corrections of over 20%. Dispersion across start dates was limited to roughly ±1%.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.