Fortune India Boardroom: When market veteran Prashant Jain met a client with 10% return expectation—every month!

Prashant Jain, a seasoned value investing veteran and founder of 3P Investment Managers, which manages assets of over ₹15,000 crore for 854 families, has been diligently guiding his investors towards rational return expectations—talking about a very sober 10-12% annual compounding over 3-5 years.

"We of course hope to beat the Nifty. So, if the Nifty goes higher, hopefully, we'll do better. This has been our view, and we have explained it in a very objective manner," Jain said at Fortune India’s closed-door session titled “Investing In A Perfect Storm” held in Mumbai recently.

But clearly, some folks didn’t get the memo.

At a recent client meeting, Jain shared, one investor confidently declared his return expectations to be 10%. The relationship manager accompanying him beamed—finally, here was a client aligned with Jain’s conservative guidance. Even as Jain and the RM exchanged approving glances, the investor added, “Is 10% per month too high to expect?”

Oh dear.

While Jain had to politely turn down the investor, he shared the anecdote to illustrate how the past few years of a bull run have created excesses—not just in valuations but also in investors’ heads!

And this irrational exuberance isn't just about expectations. It's also reflected in the frenzy around IPOs and frothy mid- and small-cap valuations. Jain pointed out that the supply of stocks is enormous, but quality is in short supply.

"If we scan 20 issues, we barely feel like applying in one. Either quality is amiss, or valuations are completely out of whack. If you look at a five-year P&L, you don’t see much. The only P&L you see is the past two years, and the sellers are very informed—either it’s private equity or the promoters selling at very expensive prices. I think one should be extremely cautious in that space," says Jain.

Essentially, while some investors expect 10% monthly, many stocks barely have five years of meaningful profit history!

Jain also highlighted how profit growth, in the long run, is tethered to India’s nominal GDP growth, which is currently in the 10-12% range—a very healthy rate. However, he was quick to point out that most sectors do not have room for margin expansion, meaning earnings growth will, at best, mirror GDP trends.

"I would expect profit growth to converge with nominal GDP growth. Fortunately, the bulk of the market cap is in large caps, where we still see some very sane valuations. But the moment you step outside Nifty 50—or maybe slightly beyond that—you either find valuations completely amiss or quality completely amiss," explains Jain.

That’s a reality check that many investors need to be mindful.

As Jain’s anecdote highlights, irrational exuberance has evolved. If the late 90s tech bubble was about companies with no revenue soaring in valuation, today’s investing psychology has moved into subscription-style returns — where some expect double digits every billing cycle!

So, the next time you hear someone expecting sky-high returns, maybe remind them: 10% per month? That’s not investing. That’s wishful thinking.