Do it yourself

The first three weeks of the FY26 have been rather dramatic for the stock markets. By the end of FY25, the benchmark Nifty 50 was down ~10% from its previous high level recorded in September 2024. Foreign investors were selling persistently. News flow from any quarter was not particularly encouraging. Investors’ sentiment was sagging. Market volumes had plunged over 30% from their 2024 highs. The rate of SIP discontinuation had increased materially, with March 2025 recording net negative addition to operative SIPs. Social media timelines of active market participants were filled with despondency.

FY26 started with the declaration of trade war by the US. Markets that were already reeling under pressure plunged further, with the benchmark Nifty 50 falling another 9% in the first five trading sessions of FY26. Anecdotal evidence suggests that many traders and small investors capitulated and liquidated their positions. Several others churned their portfolios to move to defensive sectors like FMCG, Pharma etc.

In a dramatic turnaround, Nifty 50 has gained over 9% from the lows of 7^th April 2025, erasing all the losses YTD2025. This is perhaps the most hated market rally since 2009. The participation has been poor. In fact, several investors/traders have used the rally to raise more cash.

In my view, the market continues to be in the process of forming a strong bottom and beginning a strong rally. It is early to conclude that a firm bottom is in place and a sustainable market rally is imminent. Nonetheless, the recent market behavior provides significant evidence to conclude that (i) fall from September 2024 was beginning of a bear market cycle (see here); (ii) bottoming process has accelerated with the April first week sharp correction; and (iii) contours of the new bull market have already started to take shape.

In particular, I would like to highlight the following trends to in support of my conclusion:

·         A clear leadership appears emerging, with private banks (+13% vs Nifty 50 +3% YTD2025) clearly leading the up move.

·         The up move is led by large cap stocks. Small cap (-9% YTD2025) and Midcap (-5% YTD2025) lagging behind in a typical early cycle trend.

·         Besides size wise category, sector wise - IT Services (21% YTD2025), Realty (-17% YTD2025), Pharma (-9% YTD2025), Auto (-4% YTD2025) – laggards are also prominent; usually a sign of market cycle transition.

·         A sizable number of market participants are still not confident about the sustainability of market rally; implying fear still dominates greed.

·         Implied volatility has remained low to moderate, except for a brief surge earlier this month.

·         Stock prices of capital market related businesses have recovered fast, indicating that the market participants are confident about the prospects of market activity levels picking up in the short to medium term.

I would also like to take this opportunity to mention the following ancient Hindu tradition, which I find most relevant to the investment strategy of household investors.

Hindu religious traditions mandate that a grand feast must be organized by all Hindus within 3 weeks of the death of their parents, spouse or children. In this grand feast Priests, Dogs, Crows and the poor are served with delicious food. Priests and the poor are also given clothes, gold, cash and other gifts.

Also, as per the ancient Hindu traditions, all Hindus are obligated to serve priests and feed crows during waning moon fortnight (Krishna Paksha) of lunar month of Bhadrapada. It is widely believed that serving priests and feeding crows in this fortnight pleases souls of the ancestors, and redeems the person performing this ritual from the debt of ancestors. I am not competent enough to comment about the traditions of other religions and cultures, but I am sure similar traditions are practiced by the followers of other religions also.

The lesson for investors in this tradition is that "the feast" (gains from investment) will occur regardless of you. In case you want to enjoy the feast (gains), you need to survive (stay invested) till the market cycle turns; otherwise, the priests (savvy investors and traders) will savor the feast at your expense.

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 My dilemma this morning is whether I should be concerned about the internal politics of the United States of America, as most of my colleagues and financial market participants appear to be! In past 20yrs, we have seen George Bush Jr. (Republican, 8yrs), Barak Obama (Democrat, 8yrs) and Donald Trump (Republican, 4yrs) as presidents of United States. In these 20years, India witnessed Atal Bihari Vajpayee (NDA, 3.5yrs), Manmohan Singh (UPA, 10yrs) and Narendra Modi (BJP, 6.5yrs) as India’s prime minister.

Evidently, a Socialist India (UPA) has lived well with Republican US (Bush); and a free economy supporter India (BJP) has lived well with Democrat (Obama) US. In past two decades, we have achieved progress in our civil nuclear program and we have been able to materially enhance our relationship with key US allies like Japan, Australia, UAE, Saudi Arab, and France; while maintain our strong relationship with Russia and Iran. The relationship with China has been volatile all through these years; though US has supported us in the rough patches of Sino-India relationship.

The issue of VISA, especially H1B VISA, has frequently made news in these past two decades. The volume and profitability from US business of our IT companies has grown manifold in these two decades, despite all this noise. The issue of FDA being particularly strict on Indian pharmaceutical exporters to US has also made to the headlines frequently. The US business of our pharmaceutical industry has also grown multifold in these two decades. The number of USFDA approved facilities in India has grown exponentially in past two decades.

Of course we can debate that the trade could have been much higher; or we did not do as well as we could have due to VISA restrictions, FDA actions etc. But, then we will have to answer some tough questions like lack of ethics and discipline at some of our pharmaceutical manufacturers, protectionist policies of Indian government, misuse of H1B and L1 VISA by some of Indian IT services companies, etc. It is therefore better to go with the empirical evidence rather than dwelling upon some hypothetical outcomes. And the empirical evidence is that Indo-US trade and strategic relations have been widening and deepening consistently. George Bush had famously expressed his “respect” for Atal Bihari Vajpayee, and “Love” for Dr. Manmohan Singh. “Barak” visited India twice (most by any US president) and expressed his reverence to Gandhi, admiration for Prime Minister Modi and commitment to relationship with India. Trump has gone much ahead in showing bromance with Prime Minister Modi and expressing love for “Hindu”. Biden has chosen Kamala Harris as his running mate and has promised favorable H1B regime for Indian IT companies. Regardless of who gets to live in White House for next four years, 2020 election may end up with highest number of Indian American elected as federal and state law makers.

I feel, worrying about the outcome of US elections may be out of habit of worrying too much. I believe, in broader context, the question “Trump” or “Biden” may not be any different from “Suicide” or “Murder” (of SSR).