War or No-war

The benchmark Nifty 50 fell over 11% in the month following the outbreak of the US-Israel-Iran war on 28th February 2026. Since then, Nifty has clawed back most of those losses over the past three weeks — even as it has continued to lag most of its global peers by a wide margin.

The mood on the street appears to be turning cautiously optimistic. The conditional ceasefire announced on 8th April, and the subsequent Islamabad talks — the first direct US-Iran contact since 1979 — have given markets something to hope for. The working assumption seems to be that a more durable truce may be around the corner, that shipping through the Persian Gulf will normalize, and that energy supplies from GCC countries will be restored within a few months. Several technical indicators are also pointing to the possibility of the market climbing further from current levels.

This naturally brings us to the central question every investor is now wrestling with: what should you actually do?

The options, broadly, are three: (i) sell into this rally and move more into debt, gold, or cash; (ii) buy more equities, perhaps liquidating some debt or bullion to do so; or (iii) do nothing and stay the course. The right answer will differ for each investor based on their time horizon, risk tolerance, liquidity needs, and current asset allocation — and they should ideally work through this with their financial advisor. That said, a few general observations are worth sharing.

The structural problems pre-date the war — and will outlast it.

Indian equities have been underperforming global peers for the better part of two years. The reasons are well-known: weak earnings momentum, a widening current account deficit, a weakening rupee, sluggish private capex, public capex that has fallen short of stated targets, declining household savings, elevated borrowing costs, stretched valuations, and persistent selling by both promoters and foreign investors. None of these are war-induced. And none of them will be resolved by a ceasefire.

If anything, the situation may remain structurally worse than it was on 27th February — even if peace breaks out tomorrow. Crude oil prices are unlikely to return to pre-war levels for many months. Supply chains, once disrupted, take time to heal. And there is a leg of the story that doesn't get discussed enough: India has nearly 9 million citizens living and working in the Gulf, sending home roughly $50 billion in remittances every year — close to 3% of our GDP. The economic stress on Indian workers in the region, even in a low-intensity conflict environment, is a real and underappreciated risk to household incomes and the balance of payments.

The domestic headwinds are compounding.

Weather has been unkind. Untimely rains have damaged standing Rabi crops across parts of North and West India. Weather agencies are forecasting a strengthening El Niño and a below-par monsoon this summer — which would deal a blow to Kharif output, rural incomes, and food inflation just as energy costs remain elevated. The RBI's own growth forecast of 6.9% for FY27 rests on assumptions that both rabi and kharif seasons deliver close to expectations. If either disappoints materially, that number starts to look optimistic.

On the political economy front, the NDA government appears to have less fiscal headroom — and potentially less political confidence — than it did a year ago. The probability of the fiscal consolidation path being set aside in favour of more populist spending is not negligible. For equity markets, that adds another variable to an already complicated picture.

So what does the ceasefire really change?

Mirza Ghalib put it best:

उन के देखे से जो आ जाती है मुँह पर रौनक़
वो समझते हैं कि बीमार का हाल अच्छा है

(Her presence does briefly bring radiance to my face — but the illness has not been cured.)

The prospect of a ceasefire may be triggering some short-covering and lifting sentiment. But the fundamental factors weighing on Indian equities, the rupee, and debt markets were all present before the war began — and they remain present today. A ceasefire does not restore earnings momentum. It does not revive private capex. It does not strengthen the household balance sheet or the currency. It brings temporary relief to energy and supply chain pressures, but even that will take months to fully work through.

The practical takeaway

For investors sitting on cash or looking to deploy, the current rally is worth approaching with discipline rather than enthusiasm. A gradual, staggered entry — rather than going all-in on a ceasefire-driven bounce — is the more prudent path. For those who were underweight equities before the war, some re-entry is reasonable. But piling into cyclicals or rate-sensitives on the assumption that the worst is behind us looks premature.

For investors who are overextended in equities and were already uncomfortable with their allocation, this rally may offer a useful window to bring exposure back to a level that lets you sleep at night — without panic-selling at the bottom.

And for those who are positioned sensibly for their own circumstances? The case for doing nothing — staying the course, continuing SIPs, and not second-guessing a well-constructed portfolio based on short-term news — remains as strong as ever.

War or no war, the underlying work of investing remains the same: own good businesses, stay diversified, and don't let short-term noise — in either direction — make your decisions for you.

Iran in dire straits

I presented my scenario analysis of the ongoing conflict between the US, Israel and Iran in my post on 17 March 2026 (see “The war and beyond”). After 40 days of intense fighting, the US announced a two-week conditional ceasefire on 8 April 2026 to allow peace talks mediated by Pakistan. Delegations from the US and Iran met in Islamabad on 11-12 April 2026. These were the first direct talks between the two countries since 1979. The negotiations ended without any agreement, but they have opened the door for further discussions.

The current state of affairs

In my 17 March post, I listed stalemate as one of the probable outcomes. As of this morning, that outcome looks most likely.

The US has positioned naval forces in the Strait of Hormuz against Iranian forces, but any major escalation now appears unlikely. While the Islamabad talks have broken the ice, a lasting peace may still take a long time. This situation confirms a stalemate, with the conflict continuing only at low intensity.

·         Most GCC members have shown signs of breaking ranks with the US. Qatar, Bahrain and Oman have indicated this tactically. Saudi Arabia has invoked its treaty with Pakistan, and Pakistani forces have been sent to Riyadh. This weakens the US position in West Asia.

·         Israel has opened direct dialogue with Lebanon’s political establishment. An agreement could turn Hezbollah into a non-state actor and cause Iran to lose legitimacy in Lebanese affairs.

·         Some European nations have refused to take any direct role in keeping traffic moving through the Strait of Hormuz. Spain and the UK have taken a particularly strong stand against the US, raising the possibility of a US exit from NATO.

·         Iran has tried to use its geographical control over the Strait of Hormuz — a critical route for global trade and energy — to its advantage. It has held ships and proposed toll charges. However, Iran shares the strait with Oman. The UN Convention on the Law of the Sea (UNCLOS) guarantees free passage for all ships. Oman is a signatory to UNCLOS; Iran has not yet ratified it. Oman therefore cannot legally join Iran in restricting access. A long embargo would isolate Iran further from the global economy. Trade always finds its own path. Iran’s energy production can be replaced quickly by higher output from Saudi Arabia, Venezuela, Russia, the US and others. In the absence of any US attack, Iran has no reason to strike its GCC neighbours or disrupt their energy exports.  Though Iran may not have technically lost the war, it has been significantly weakened both economically and strategically. Failure to reach an agreement in the next couple of months could isolate it even more as the global economy suffers from higher energy costs.

·         A low-intensity conflict may continue for many years; however a major attack by Iran or Israel to declare the ceasefire over cannot be ruled out completely.

·         Energy prices may remain elevated for a long time, but supplies should normalize within a few months.

·         Indian stock markets may stabilize after a few days of heightened volatility. Fourth-quarter results and FY27 guidance will decide the market’s future direction. In my view, we may see a narrow, range-bound market for the next six months.

Adapting Investment Strategies to a Changing Global Landscape

Investing has always involved uncertainty. But most investors manage that uncertainty using a set of well-tested rules — rules about which assets are safe, which markets will outperform, and which strategies hold up when things get rough. Over the past two years, many of those rules have been quietly breaking down.

This is not a temporary blip. The changes are structural. And if investors do not update their thinking, they risk making decisions based on a world that no longer exists.

Over the past year, the world has experienced significant shifts that have disrupted long-held assumptions and altered market dynamics. From evolving geopolitical tensions to changes in institutional effectiveness, investors are facing an environment of heightened uncertainty. To navigate these changes successfully, it’s essential for investors to reassess their strategies and adapt to the new reality.

The geopolitical safety net has frayed

For decades, US military presence in West Asia gave investors, businesses, and tourists a degree of confidence in the region. Countries like the UAE, Qatar, and Bahrain were widely seen as stable and secure — partly because of that umbrella of protection.

The escalating US-Iran tensions have complicated that picture significantly. The assumption that US backing means automatic regional stability has been tested in ways it had not been before. Businesses with operations in the Gulf need to factor in a wider range of scenarios than they did five years ago.

Separately, Israel's defense capabilities — long considered among the most advanced in the world — have been challenged in ways that surprised many observers. Iran's direct strikes have changed how analysts and governments think about deterrence in the region.

The geographic diversification strategies that once treated parts of West Asia as low-risk may therefore need revisiting.

Global institutions are losing their grip

The United Nations was designed with structural limitations — veto powers mean that major-power conflicts almost always escape meaningful intervention. But the past two years have made those limitations more visible than ever, across multiple simultaneous conflicts: Russia-Ukraine, India-Pakistan tensions, Israel-Palestine, Israel-Iran, and the wider US-Iran standoff.

Equally notable is NATO's response (or lack thereof) to the US-Iran conflict. Several NATO members declined to join the US militarily — a signal that the alliance is operating with more internal diversity of interest than its unified image suggests.

For investors, the signal here is not that institutions are disappearing. It is that they can no longer be relied upon to contain or resolve conflicts in ways that protect markets. Geopolitical risk needs to be priced more carefully, not assumed away.

The old market playbook is not working

This is where it gets most directly relevant to portfolios. Several long-standing market assumptions have either weakened or broken down entirely.

Gold is a reliable hedge against inflation and geopolitical shocks

Gold's short-term behavior has been more volatile than expected. When the US-Iran conflict escalated and energy inflation spiked, gold prices fell rather than rising — partly due to dollar strength, rising bond yields, and forced selling by leveraged investors. Gold's long-term store-of-value case is still alive, but its role as a near-term crisis hedge has become less predictable.

"Sell in May and come back in October" — markets weaken in summer and recover in autumn.

This seasonal pattern has been unreliable for several years now and has effectively stopped working as a strategy. With global, 24-hour markets and algorithmic trading, seasonal patterns erode as soon as they are widely known. Investors relying on calendar-based rules are finding them expensive.

In times of uncertainty, value stocks and blue-chip defensive companies outperform.

Over the past two years, value has severely underperformed growth. Defensive, dividend-paying companies have not provided the shelter investors expected. The factors driving markets — AI investment cycles, interest rate dynamics, geopolitical disruptions — do not fit neatly into the traditional defensive playbook.

Indian equities deserve a large premium over other emerging markets.

India's premium over other emerging markets — built on its large market size, strong regulation, and high growth — has steadily compressed as foreign investors have sold Indian securities consistently over the past two years. The premium is not gone, but it is smaller and less taken-for-granted than it was. Foreign investor patience with Indian valuations has limits.

India’s Equity Market: A Shift in Investor Sentiment

India has long been a favored destination for foreign investors, attracting capital due to its market size, growth potential, and strong regulatory framework. Historically, Indian equities traded at a premium to other emerging markets, supported by these favorable factors. However, in the past two years, this premium has diminished as foreign investors have been pulling capital out of Indian markets. The reasons behind this shift include global economic uncertainty, rising interest rates, and concerns about domestic political developments.

Despite this, India remains one of the fastest-growing major economies, and its long-term growth prospects are still strong. However, the recent decline in foreign investment highlights the need for investors to reconsider their assumptions about the Indian market and adjust their strategies accordingly.

So what should investors do?

The honest answer is that there are no easy replacements for the rules that are breaking down. But there are some clear principles for navigating a more uncertain world.

The world has not become unnavigable. But it has become less predictable. Investors who acknowledge this — and build it into their process — are better placed than those who wait for the old rules to start working again. The defining skill of the next decade may simply be the willingness to stay curious, stay humble, and keep questioning what you think you know.

Treat volatility as the baseline, not the exception. For many years, low volatility was the norm and spikes were temporary. That may be reversing. Portfolio construction, position sizing, and risk management should all be built around the assumption that high volatility is here to stay.

Question every "always works" rule. If a strategy or correlation is part of conventional wisdom, it is worth asking: does the logic still hold given today's market structure? The worst time to find out a rule no longer works is after it has cost you money.

Diversify across scenarios, not just assets. Traditional diversification — across stocks, bonds, gold, and geographies — assumed those assets would behave in known ways relative to each other. Many of those correlations have shifted. Think about scenarios, not just asset classes.

Reassess geopolitical risk regularly. The geopolitical map is being redrawn. Assumptions about safe regions, stable alliances, and reliable institutions need to be reviewed more frequently than they used to be.

RBI status quo - A Prudent Pause or a Risky Delay?

The Reserve Bank of India's Monetary Policy Committee wrapped up its 60th meeting on Wednesday with a unanimous vote to hold the policy repo rate steady at 5.25%. The SDF rate stays at 5.00%, the MSF and Bank Rate at 5.50%. MPC maintained a neutral stance, while keeping a flexibility to act if need arose.

Governor Sanjay Malhotra termed the MPC decision as one of prudent watchfulness, emphasizing that the Indian economy confronts a genuine supply shock from the West Asia conflict, and with core inflation still muted and fundamentals sound, the MPC chose to observe rather than act.” On the surface, this reads as responsible central banking. Below the surface, several questions deserve sharper scrutiny. In particular, the following points need to be kept in mind by investors.

Is this a prolonged pause?

The language in the MPC’s statement is telling. The MPC “decided to continue with the neutral stance, retaining the flexibility to respond judiciously to incoming information.” To me it translates to – “no rate cut is on the table for now, and the Committee is giving itself maximum optionality.”

The RBI is effectively signaling that the next move — whether a cut or a hike — depends entirely on how the West Asia conflict evolves. It explicitly lists supply chains, energy infrastructure damage, shipping routes through the Strait of Hormuz, and potential El Niño conditions as risk factors. Until these clarify, it is reasonable to expect RBI to stay on pause.

In my view, a prolonged pause — potentially through H1 FY27 — is the base case. If El Niño materializes and energy prices stay elevated, the next move could even be a hike, though that remains a tail risk. Rate cut expectations should be firmly pushed to H2 FY27 at the earliest.

Is the Inflation Forecast Adequate?

The RBI has projected CPI inflation for FY27 at 4.6%, with a Q3 spike to 5.2%. Core inflation is seen at 4.4%. At first glance, this appears to meaningfully revise up from the recent sub-4% prints. But look harder and the forecast raises uncomfortable questions.

The statement acknowledges that crude oil price volatility is a major upside risk — but the baseline assumption appears to embed a relatively contained near-term impact. Retail petrol and diesel prices have not been revised as of the statement, even as LPG, commercial fuels and premium petrol variants have already seen increases. If the government is forced to pass through higher crude costs to retail consumers — a political decision, not an economic one — inflation could easily breach the Q3 estimate of 5.2%.

The Governor also acknowledged that the Indian rupee depreciated more in 2025-26 than in prior years, even with relatively stronger fundamentals. A materially weaker USD/INR naturally amplifies imported inflation — particularly for crude, edible oils, and fertilizers. The statement reiterates that RBI policy is to smooth volatility, not target levels. But if the rupee faces sustained depreciation pressure from FPI outflows (US$5.4 billion already in April 1–6 alone), the inflation math becomes harder. The forecast does not appear to explicitly model a significantly weaker rupee scenario.

The 4.6% average forecast looks understated if oil stays elevated and USDINR weakens further. A realistic upside scenario puts FY27 average CPI at 4.9–5.2%. The Q3 estimate of 5.2% may prove to be a floor, not a peak. Investors may not assume monetary easing on the basis of this forecast alone.

Is the Growth Forecast Realistic?

The RBI projects real GDP growth of 6.9% for FY27, stepping down from the estimated 7.6% in FY26. Quarter-by-quarter, growth is expected to trough at 6.7% in Q2 before recovering to 7.2% by Q4.

The statement points to robust rabi crop prospects and healthy reservoir levels (47% of capacity vs. 40% a year ago) as support factors. But ground reports of untimely rains and hailstorm damage to standing rabi crops across several key producing states — Madhya Pradesh, Maharashtra, Uttar Pradesh, Punjab, Haryana, Rajasthan — suggest the actual rabi outturn may disappoint against the Second Advance Estimate. The RBI's own footnote flags that rabi foodgrain production growth of 3.0% could be an overestimate. Separately, the El Niño risk to Kharif 2027 is flagged as a concern but remains outside the baseline assumption. If both rabi disappoints and Kharif is weak, rural income stress will weigh on private consumption and demand — which the RBI is banking on as a growth driver.

Merchandise exports contracted 0.2% during January-February 2026, with the US (India's largest market) registering a 17.5% contraction. Trade deficit widened sharply to US$61.8 billion in Jan-Feb vs. US$37.1 billion a year ago. The RBI's own data shows FPI outflows of US$16.5 billion in FY26 and a further US$5.4 billion in just the first week of FY27. The 6.9% growth projection implicitly assumes these headwinds are manageable — but if global demand weakens further and the conflict prolongs, the export channel offers little buffer.

The government has budgeted central capex to rise 11.5% in FY27, with effective capital expenditure (including state transfers) growing 22.1%. This provides a genuine growth floor that partly justifies the RBI's relatively sanguine baseline. But public capex cannot offset simultaneously weaker exports, a stressed rural economy, and a cautious private sector.

In my view, 6.9% growth for FY27 is achievable only under benign assumptions — conflict contained, El Niño averted, rupee stabilized, rabi harvests close to estimates. Strip out even two of these assumptions and growth is more likely in the 6.0–6.3% range. The RBI appears to have incorporated a partial haircut from 7.6% but may not have gone far enougWhat Else Did the RBI Announce?

What else RBI announced

Beyond rates, the RBI announced several regulatory and market development measures. On capital adequacy, it proposed removing the NPA provisioning condition for inclusion of quarterly profits in CRAR — a modest relief for bank capital reporting. The Investment Fluctuation Reserve (IFR) requirement is also being dispensed with for commercial banks, given that they already maintain market risk capital charges.

On market development, the term money market is being opened up to non-bank entities (AIFIs, NBFCs, housing finance companies), which should deepen market participation and improve monetary transmission from overnight to longer-term rates. MSME onboarding on TReDS platforms is being simplified by removing the due diligence requirement — a small but meaningful ease-of-business move for smaller firms.

Conclusion

The RBI maintained the status quo on the expected lines. But “wait and watch” has its own risks in a fast-moving geopolitical environment. Three gaps stand out in today's statement:

·         The pause is likely longer than markets expect.

·         Inflation risks are real and may be underweighted. The rupee, oil, and El Niño form a perfect storm.

·         Growth of 6.9% relies on a lot going right. Agriculture, exports, and financial markets are all flashing amber.

Investors may do better adequately discounting RBI forecasts and position accordingly.

 

Active vs. Passive Investing

In my recent posts, I have discussed the quiet anxiety gripping many investors — portfolios underperforming, cherished stocks going nowhere, and the old debates returning with fresh urgency. Yesterday, we tackled “buy & hold vs. flow with the current”. Today, let us address another debate that has been filling up investment forums and social media timelines alike: should you be an active investor or simply go passive?

As with most either/or questions in investing, the most sensible answer lies not in choosing one side — but in combining both, thoughtfully.

First, Let Us Understand the Two Sides

Passive investing is straightforward. You buy an index fund or an ETF — say, one that tracks the Nifty 50 or the BSE Sensex — and you simply mirror the market. No stock picking, no timing, no fund manager calls. Your return is roughly what the index delivers. As we noted earlier this week, the Nifty 50 has returned about 8.7% CAGR over the past five years. That is not spectacular, but it is honest, low-cost, and requires almost no effort.

Active investing, on the other hand, involves making deliberate choices — selecting specific stocks or actively managed mutual funds with the goal of beating the index. A skilled fund manager, or a well-researched individual investor, aims to identify opportunities that the broader market has not yet fully priced in. The NSE Small Cap 100, for instance, has returned 12.9% CAGR over the same five-year period — a meaningful outperformance over the Nifty 50 — but with considerably more volatility along the way.

Both approaches have delivered results. Neither is universally superior. And that is precisely the point.

The Case for Passive — It Is Harder to Beat the Market Than You Think

Decades of global data tell us something humbling: the majority of active fund managers fail to consistently beat their benchmark indices over long periods, especially after accounting for fees. In India too, while several funds have outperformed in bursts, very few have done so consistently across full market cycles.

For a small investor with limited time, limited access to research, and limited tolerance for volatility, a simple index fund offers a clean, honest proposition: you will not beat the market, but you will not badly lag it either. Over a long horizon, that is a perfectly respectable outcome.

Passive investing also removes two of the biggest enemies of wealth creation — overtrading driven by emotion, and the steep cost of frequent mistakes.

The Case for Active — Alpha Does Exist, If You Know Where to Look

And yet, passive investing alone leaves returns on the table.

India is not a perfectly efficient market. Opportunities exist — in mid-cap and small-cap companies, in sectors going through temporary distress, in businesses that are growing quietly without the spotlight of institutional coverage. A patient, well-researched active strategy can and does generate alpha — returns above and beyond what the index delivers.

The key phrase, of course, is well-researched. Blind stock picking is not active investing — it is speculation dressed in a suit. True active investing requires understanding the business, tracking it regularly, and making decisions based on logic rather than noise.

Active mutual funds, when chosen wisely — based on consistent long-term track record, fund manager quality, and investment philosophy — have also delivered meaningfully better returns than indices for Indian investors, particularly in the flexi-cap and small-cap categories.

Why Your Portfolio Needs Both

Think of your investment portfolio like a cricket team. You need reliable, consistent performers — players who will not win you the match single-handedly, but will also not throw it away. That is your passive core. Index funds, large-cap ETFs — steady, low-cost, dependable.

But you also need match-winners — those who can change the game on a given day. That is your active sleeve. Carefully chosen stocks or actively managed funds, where you have genuine conviction and are prepared to monitor performance.

The passive core gives your portfolio stability and market participation. The active sleeve gives it the potential for outperformance. Together, they create a portfolio that is neither recklessly aggressive nor unnecessarily timid.

A Simple Way to Think About the Split

There is no single correct ratio, but here is a reasonable starting framework for a small investor:

Allocate a meaningful portion — perhaps 50 to 60 percent — of your equity portfolio to passive instruments. Low-cost Nifty 50 or Nifty Next 50 index funds are a good starting point. This is your foundation. It requires no monitoring and delivers market returns reliably.

The remaining 40 to 50 percent can go into active strategies — whether that means a few carefully chosen direct stocks where you have done your homework, or two to three actively managed mutual funds with strong long-term track records across market cycles.

Over time, as your understanding and confidence grow, you can fine-tune this mix. But the principle remains: anchor with passive, seek alpha with active.

The Real Enemy Is Not Your Strategy — It Is Your Behavior

Here is a hard truth that applies to both active and passive investors equally: the biggest destroyer of returns is not the wrong strategy — it is the wrong behavior.

Panic-selling a perfectly good index fund during a correction. Chasing last year’s top-performing active fund. Abandoning an active stock pick after one bad quarter. These behaviors — driven by fear, impatience, or greed — erase the benefits of whichever strategy you have chosen.

A blended portfolio, with a stable passive core, actually helps here. When your active bets go through a rough patch — and they will — the steady performance of your index funds prevents you from making rash decisions with the entire portfolio.

The Bottom Line

Active vs. passive is not a battle to be won. It is a balance to be struck.

A portfolio that is entirely passive leaves genuine opportunities unexplored. A portfolio that is entirely active carries unnecessary risk and demands more time and skill than most investors realistically have.

Build a core that tracks the market reliably. Layer it with active positions where you have real conviction. Review both honestly and regularly. And resist the urge to abandon either when markets get difficult.

That is not a compromise — that is a strategy.

 

Buy & hold vs Flow with the current

Few days ago, we spoke about investors reassessing their "family silver" — stocks held for decades that have delivered little or no return in recent years (see here). This naturally brings us to one of the oldest debates in investing: should you simply buy good stocks and hold them forever, or should you keep adjusting your portfolio as the world around you changes?

The honest answer is: there is no one-size-fits-all rule. Both strategies have merit, and the right choice depends largely on the individual business you own — not on any fixed philosophy.

Businesses Are Not Static

Think of a business the way you would think of a living organism. It must adapt to survive. The world it operates in keeps changing — technology evolves, consumer tastes shift, new competitors emerge, and regulators rewrite the rules of the game. A company that refuses to change with the times risks becoming irrelevant, or worse, obsolete.

History gives us stark reminders. Kodak dominated photography for a century, then vanished almost overnight when digital cameras arrived. Videoconferencing killed many travel businesses; e-commerce reshaped retail. Closer home, demonetization and GST disrupted entire industries. Technological change does not knock politely before entering.

Beyond external disruption, internal factors matter too — a change in leadership, a family feud in a promoter-driven company, or a shift in strategic priorities can quietly damage a business’s future even when the headlines look fine.

So, When Should You Hold? When Should You Move?

·         Here is a practical and time-tested approach: write down why you bought a stock in the first place.

Before you invest, note the key reasons behind your decision. Was it the company's market leadership? Its superior product? Its strong balance sheet? Its expanding addressable market? Whatever your reason, put it in writing.

Then, revisit those notes periodically — at least once a year, or whenever something significant happens in the business or industry.

As long as the original reasons remain valid, stay invested. If the stock has actually exceeded your expectations — growing faster, dominating more of the market, launching new products — consider adding more.

However, if the stock is no longer delivering on the promise that made you invest, it may be time to exit. Not in panic, not out of frustration — but calmly and with clear reasoning.

A Simple Framework

Here is how to think about it:

If you invested in a market leader, stay invested as long as that company remains the leader in its space. Leadership is hard to build and, when intact, it compounds beautifully.

If you invested in a potential leader — a company you believed was on the path to becoming dominant — stay invested as long as it continues moving in that direction. If it loses its way or gets overtaken, reassess.

The moment the “why” behind your investment breaks down, the case for holding weakens significantly.

The Real Problem with "Buy & Hold"

"Buy and hold" is often misunderstood. It does not mean buy and forget. It means buy with conviction, and hold that conviction accountable. The investors who have struggled recently are not those who held for the long term — they are those who held without reviewing whether their original assumptions still held true.

Stocks like TCS, HDFC Bank, or Asian Paints are not bad businesses. But if you bought them five years ago without tracking whether the tailwinds that drove them earlier were still in play, you may have missed better opportunities elsewhere — without even realizing it.

The Bottom Line

Investing is not a one-time decision — it is an ongoing process. Neither blind holding nor frantic churning serves the investor well.

Buy with a clear reason. Hold with discipline. Review with honesty. Exit without ego.

That, in a nutshell, is how you stay invested intelligently — whether markets are calm or choppy.

 

FY26: The worst fears came true

The financial year 2025-26 started on a disruptive note with President Trump announcing a hike/imposition of tariffs on most of the USA’s imports from 9^th April 2025. During the course of the year, the Trump administrations made several changes to the tariff policy, creating an environment of heightened uncertainty amongst trading partners of the US. India was one of the worst affected countries. Though the Supreme Court of the US ruled against Trump's tariff policy in February 2026, the uncertainty still remains.

The technological advancements in the sphere of artificial intelligence and advanced computing during the year also disrupted Indian equity markets, in more than one way. The IT services sector stocks suffered valuation de-rating on clouding of growth prospects. Foreign investors accelerated the shift of their portfolio from Indian equities (due to lack of meaningful AI or Advanced computing opportunities) to the markets like South Korea and the US.

The US and Israel coalition attacked Iran on 28^th February 2026. The war escalated materially in the following weeks and still continues. This war has disrupted global supply chains. Energy supplies are impaired and prices have spiked sharply. Several countries are reporting shortages of key raw materials. Manufacturers are staring at a summer of discontent. Consumers are struggling with shortages and higher prices.

I had written in my first post of FY26, “Financial Year 2024-25 (FY25), may be recorded in the annals of history as a watershed year for global politics, geopolitics, markets and the financial system. The events that occurred during the past twelve months have opened up significant possibilities for emergence of a new global order. Although the contours of the likely new global order are yet to begin taking a shape, it appears that fight for dominance over technology; endeavor to gain fiscal strength; interventionist democracy where the state exercises intensive control over citizens; and top priority to energy security would be four key characteristics of the new order.” (see here)

The actual scenario is playing out mostly on these lines only. Also, in my CY2026 outlook post, I had mentioned the following five key risks for 2026.

·         Sharp global growth slowdown

·         Unexpected inflation resurgence

·         Fiscal slippage or policy inconsistency

·         Geopolitical escalation impacting energy or trade

·         Financial system stress from isolated credit events

It appears that four out of these five risks have already materialized in the first quarter of 2026 itself. The financial year has ended with the markets still on edge.

Key highlights of FY26

·         The equity markets in India yielded negative returns for FY26, with Nifty returns being zero for the past two years (FY25-FY26). Indian bonds and currency markets were also notably weak and yielded negative returns for the FY26. FY26 was one of the worst years for INR. Precious metals were the notable outperformers for the year. Indian equities and currency were one of the worst performers globally.

·         Although the economy remained resilient, the corporate earnings failed to meet the expectations for the second consecutive year. The earnings disappointment came despite favorable monetary conditions; good monsoon, low inflation and recovery in rural demand.

·         Indian corporates raised a record Rs1.79 trillion from IPOs during FY26. Besides, Rs510bn through qualified institutional placements. The trend of corporate deleveraging continued.

·         Negative FPI flows also dominated the headlines. FY26 was one of the few years when FPIs were overall net sellers – accounting for the primary and secondary markets for both equity and debt.

·         The balance of power, in terms of equity ownership, continued to shift from the foreign portfolio investors (FPIs) to Indian household investors (Retail). The ownership of FPIs in the listed Indian equities fell to a 14 year low of ~16%; while retail investors’ ownership in listed Indian equities increased to a two decade high of ~25%.

·         Lending rates eased 50-75bps, lower than the policy rate cut of 100bps. RBI maintained comfortable liquidity through a variety of measures. Deposit rates were also lower by 60-65bps.

·         Globally, some notable financial market events in FY26 were – (i) sharp outperformance of Asian equities, especially South Korea and Japan; (ii) sharp rise in the Japanese bond yields; (iii) the Fed pausing after cutting 75bps during the year against the consensus expectation of another 50bps cut; and (iv) Gold (+49%) and Silver (+120%) rallied hard, while bitcoin prices fell ~20%.

·         Geopolitical tension that started with the Russian invasion of Ukraine in early 2022, and escalated with Israel raiding Palestinian territories in 2023, continued to rise in 2026 with intense war between the US & Israel coalition and Iran. A swift change of regime in Venezuela was another notable geopolitical event of FY26.

Stock markets – Worst year since FY20

The Benchmark Nifty50 ended FY26 at 22336.40, 5.1% lower yoy; making two return zero for Nifty. NSE Midcap 100 managed to end the year with marginal gains (+1.9%); while NSE Small cap 100 index (-5.5%) fell in tandem with Nifty. The overall market capitalization of the NSE was marginally higher (+0.1%) at Rs411.25 trillion; however, in USD terms the market capitalization was lower by 10% at US$4.34trn at end of FY26 vs US$4.8trn a year ago.

·         The popular investment themes of FY25 (Defense, clean energy, roads, railways, etc.) underperformed in FY26.

·         PSU Banks, Metals, Healthcare, Auto, and Energy were the top performing sectors. Realty, IT Services, FMCG, Private Banks, and Services were the notable underperformers.

·         International equity funds and Gold ETFs and Silver ETFs, delivered strong performance, sharply outperforming the equity markets

·         Most mutual funds managed to outperform Nifty 50 by a decent margin.

·         Nifty 50 valuations are now closer to long term averages with one year forward PER at ~20x, Price to Book at ~3.7x, Market Cap to GDP at 119%, and the spread between Bond yield and Earning yield has narrowed in recent months.

·         Long-term (5yr rolling CAGR) Nifty returns collapsed to 8.7% at the end of FY26, lowest since FY20.

Earnings growth – continues to lose momentum

Nifty EPS growth disappointed in FY26 also, after recording almost no growth in FY25. FY27e earning growth is also likely to be in mid-single digits. The earnings in the five years FY22-FY26e have grown at 15% CAGR.

FPIs secondary market flows negative for unprecedented third consecutive year

Though the overall institutional flows in the secondary markets remained positive consistently, persistent FPI outflows are becoming a cause of worry. In FY26 FPIs were net sellers in the secondary market to the tune of Rs 2.5 trn, while DII net bought Rs8.5trn, resulting in a record net institutional inflow of Rs5.98trn. FPIs have been net sellers in the Indian secondary market for three consecutive years (FY24-FY26) now, resulting in a net 3 year outflow of Rs6.2trn.

Debt and currency – distinctly weak

INR was one of the worst global currencies in the world, losing 8.4% against USD, 13.3% against GBP, 17.7% against EUR and 7.5% against JPY. The yield curve lifted higher and steepened sharply. The benchmark yields ended higher at 6.96%) vs 6.58% at end of FY25) despite monetary easing. Lending and deposit rates were lower.

Commodities – A buoyant year

The year FY26 was a buoyant year for commodities. Precious metals, energy, soft commodities and industrial metals ended mostly higher for the year. USD weakness, tariff war and geopolitical conflicts impacted the supply chains and cost curves. The commodity prices were thus higher despite a marked slowdown in Chinese and European economies. Silver (+120%), Gold (+49%), WTI Crude (+43%), Aluminum (+37%), Copper (+27%), Wheat (+14%) were some notable gainers. Sugar (-20%) was a notable loser.

·         Gold and Silver prices have shown a declining trend in the last couple of months.

·         Soft commodity prices are mostly back to pre-Ukraine war levels or even lower.

·         Natural Gas prices are at 2021 levels, despite sharp rise in crude oil prices and supply disruptions.

Cryptos – A bad year

FY26 was a bad year for cryptocurrencies. Bitcoin, the largest and most popular cryptocurrency, ended the year with over 20% loss, while several smaller cryptocurrencies ended much lower. Cryptocurrencies however continued to gain wider acceptance from governments, regulators, financial institutions, market participants, and investors. More and more governments are now inclined to view crypto as a legitimate asset.

Economic Growth – a widespread slowdown

Both the engines of global growth in the post Global Financial Crisis (GFC) era, viz., China and India, are now experiencing some fatigue. Though the Indian economy continues to show resilience, the geopolitical conditions are indicating a widespread slowdown. With large European economies like Germany, France and UK barely growing, Japan and Latin American economies slowing and the US economy also showing distinct signs of an impending slowdown in 2025, the global economic growth has certainly entered a slow lane in FY26.