Do it yourself

I returned to my desk after a 10-day Diwali break. As I opened my overflowing mailbox, I realized a lot might have changed in the meantime. Nifty50 is flirting with its all-time level. INR has regained some of its lost ground. Precious metal prices have cooled after a sharp upmove. There is a conspicuous thaw in the Indo-US and Sino-US relations. Prime Minister Modi, who hardly missed an opportunity to represent India at various global forums, has missed the ASEAN summit after missing the UNGA annual session, arguably to avoid a one-on-one meeting with President Trump.

However, what caught my attention was a large number of notes, reports, messages alluding to the unsustainable $38trn US government debt, and how the US government and the US Federal Reserve are conspiring to dissipate this mountain of debt by manipulating the prices of gold and cryptocurrencies (especially Bitcoins). Most messages are arguing that 2026 could be a 1933 and/or 1971 redux, when USD was devalued 69% (1933) and Richard Nixon abruptly ended Bretton Wood and turned USD into a fiat currency to sidestep a debt crisis (1971).

Several analysts(?) suspect that the US strategy is to—

(i)    Create an environment of extreme uncertainty through trade war and geopolitical volatility and coax the eastern economies to accumulate gold at an elevated price.

(ii)   Keep the USD weaker, rebuild the US manufacturing base, incentivize exports, discourage imports to minimize trade deficit and strengthen the core of the US economy.

(iii)  Gain control over blockchain economics - suppress the value of cryptocurrencies and accumulate large reserves. Today the crypto market cap is appx US$4 trn. “Experts” are estimating it to cross US$100 trn in the next 10-12 years.

(iv)  Make UST yields unattractive and gradually substitute stablecoins to devalue public debt. Manipulate the crypto prices higher and offer accumulated crypto-coins to settle the mammoth debt.

(v)   Engineer a crash in prices of precious metals, inflicting severe pain on the eastern economies, which will be facing pressure anyways due to the US export competitiveness, and thus extend the USD supremacy for many more decades.

In my view, this analysis suffers from various shortcomings. It selectively chooses historical context 1933 and 1971 while ignoring demise of Roman, Mughal, British, Mauryan empires etc. Analysts seem to have assumed central banking and electoral democracy as sicut datum est or a fait accompli, in their analysis, whereas there is evidence that the autonomy of the central banks is being politically undermined; and the present form of electoral democracy is facing challenges in several countries.

The analysis also conveniently ignores that The US (and European & Japanese) debt problem is not new, but decades old. The US has been running unsustainable debt ever since the dotcom burst. It is only after the Lehman Bros. collapse that the debt has shifted from banks and household balance sheets to the government's balance sheet. Post Covid, the inflation moved from assets to grocery. It is now coming back to assets.

I would rather file these analyses into the “conspiracy theories” folder, than take it seriously and make it a basis for any change in my investment strategy.

In my view, notwithstanding how much people may dislike grocery inflation, they love asset inflation more than anything. Most of them would vote for a rise in the nominal value of their home, jewellery, and stocks, but only a few would vote for a slower pace of rise in the grocery prices. If you take asset inflation away, the political system might collapse.

In my view, under the present circumstances, the world should be worrying about the potential collapse of the post WW2 world order, while the new order still remains a work in progress. The chaotic transition might hurt the investors much more than what they would expect to gain from a 10-20% rise or fall in gold prices, a couple of percentage points change in US treasury yields, or Dollar (DXY) Index.

I found the views of Mr. Lawrence Wong, Prime Minister of Singapore, as expressed in his recent interview with the Financial Times, most pertinent in this context. (see here)

Following the Custom: Balancing Faith and Fundamentals

Each Diwali, as lamps light up homes, optimism lights up Dalal Street too.

It’s that time of the year again. Business channels are abuzz with market commentators dressed in their festive best, sharing their annual outlooks on the economy and equities. Almost by ritual, hope dominates the narrative — and that’s not necessarily a bad thing.

This year, with investor sentiment subdued and global uncertainties still clouding the horizon, a measured dose of optimism may be just what the market needs. Continuing the custom, here’s a closer look at what could turn favorable for Indian markets over the next one year — and what investors should keep an eye on.

Domestic Drivers: The Spark Within

Consumption revival on the horizon

After three years of subdued consumption, several catalysts are now aligning. Rationalization of income tax and GST rates, material lending reforms by the RBI, a supportive rate environment, and a good monsoon could together revive private consumption demand. The upcoming pay-commission payouts may add further fuel, particularly in semi-urban and rural markets.

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Capex momentum building up

The long-awaited private investment cycle seems to be stirring beyond government-led initiatives. In the past six months, Indian corporates have announced new projects worth ₹9.35–9.95 lakh crore, marking a 30–37% year-on-year increase — the second-highest level in 15 years for the April–September period.

The new investments span data centers, defense manufacturing, semiconductors, mining, power transmission, and battery storage — sectors that could structurally strengthen the domestic supply chain.

If these plans translate into execution, they could lift capacity utilization levels, spur employment, and improve corporate earnings visibility over FY27–FY28.​

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Global Tailwinds: Winds Turning Favorable

Energy and trade outlook brightening

Global energy prices are projected to ease in 2026 as demand growth moderates and logistics costs normalize. An eventual increase in OPEC production could add downward pressure.

Simultaneously, the finalization of trade agreements with the EU, the U.S., and other major partners could stabilize India’s current account and lend support to the rupee.

Foreign flows stabilizing

After months of heavy selling, foreign investors’ outflows are slowing. Several global brokerages have highlighted that after underperforming global peers for a year, Indian equities are re-entering attractive valuation zones.

Structural Shifts: Productivity & Valuations

AI and efficiency gains

While still in early stages, AI-led productivity improvements may begin reflecting in corporate bottom lines from FY27 onward — particularly in IT services, logistics, and manufacturing automation. The initial phase could boost operating margins and asset utilization ratios.

Valuations moderating to reasonable levels

Indian equities have corrected modestly from their 2023 peaks. The Nifty 50 forward P/E now stands around 18.5×, roughly 10% below its five-year average.

With earnings expected to grow in double digits through FY27–FY28, select large-cap names look increasingly compelling from a risk-reward standpoint.​

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Every Diwali brings hope, but this year’s optimism must be tempered with realism. A few watchpoints remain:

Fiscal balance: Pre-election spending or subsidy pressures could test the fiscal glide path.

External vulnerabilities: A sudden oil price spike or renewed global conflict could alter India’s macro assumptions.

Execution gap: Investment announcements often lag actual implementation; sustained follow-through will be critical.

AI hype vs. reality: Productivity gains may take longer than expected to reflect at scale.

Geopolitics: Even as ceasefire talks progress in the Middle East, tensions between major powers remain fluid.

A balanced investor would acknowledge these risks even while celebrating the improving trends.

Conclusion: The Glow of Disciplined Optimism

Diwali has always symbolized renewal — of faith, fortune, and perspective. This year, as India stands on the cusp of a consumption revival and a capex upcycle, optimism has reason to exist.

Yet, faith alone does not light the path forward — fundamentals do. The coming year could reward investors who practice disciplined optimism: staying invested in quality, avoiding exuberance, and letting conviction — not celebration — drive portfolio choices.

From today, I am taking my Diwali break. My next post will be on Monday, the 27th October.

Wishing all the readers a very Enlightening, Blissful and Joyous Diwali. May the Mother Supreme destroy all the darkness and sorrow from our lives and guide us to the path of enlightenment and divine bliss.

In recent times, one of the most extrapolated data by the market participants in India has been the household participation in the capital markets. Several research papers/reports have highlighted the relatively low deployment of the Indian household savings into the capital market, especially listed equity shares, to argue for a high growth potential in this area. In fact, capital market related stocks like brokerages, AMCs, depositories, exchanges and transfer agents & registrars, have been outperforming the broader markets for the past few years. Impressed by the trend, NSE has even launched an index (Nifty Capital Market index) to capture the performance of this sector.

Indubitably, the Indian capital markets are at the threshold of a major transition. Acceleration in institutionalization of household participation has been a major trend in the past five years. Access to banking and financial markets has improved materially with the advancement of technology and digitalization in the last one decade. The young demographic is looking to enhance their wealth through participation in the growth businesses. `The participation of small and medium sized entrepreneurs in the listed market is also increasing rapidly.

Nonetheless, extrapolating the current household participation data to the levels of the US and affording valuations based on 10-15yr forward earnings based on such lofty assumptions might not be appropriate in my view.

It may be pertinent to note the following in this context —

·         Household participation in capital markets in countries like UK, Australia, South Korea is about 7 to 8% of total household assets. China and Japan are higher at 11 to 12%. At present, Indian households’ allocation to shares, debentures and mutual funds is approximately 2.5% of their total assets.

The per capita income in these countries are much higher than India – the UK ($55000), Australia ($64,500), China ($13,700,), Japan ($34000), South Korea ($34600) as compared to India ($2880). As of this morning, there is nothing to suggest that India might reach $12000 (4x the current level) mean per capita income level in the next 10-12years, that might be needed to reach 7-8% allocation to capital markets (debt and equity).

​Indian households presently allocate about 29-30% of their assets to financial assets. Of this 30%, about 7-8% (2 to 2.5% of the total) is allocated to mutual funds, shares and debentures (public equity and debt). This allocation is almost the same as it was in the decade of 1990s. Not much has changed in the past three decades, since the first round of reforms and liberalization.

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·         The financial liabilities of the Indian households have been rising faster than the financial assets in the past couple of decades. The anecdotal evidence suggests that this trend is likely to sustain for the next decade also, as household savings continue to stay lower. This implies that the risk-taking ability of the Indian household would diminish further in the short to medium term. This does not augur well for a meaningful rise in the capital market participation.

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​·         Indian listed equities and mutual funds have consistently failed to generate meaningful alpha over physical assets like gold and real estate over a longer period. For example, over the past 15 years, Nifty 50 (+311%) has sharply underperformed even gold (464% in INR terms) returns. Over 50% fund managers have even failed to match the benchmark returns.

·         In the past three decades, the employment intensity of GDP has diminished materially. For 6.5% GDP growth, employment growth is less than 0.5% CAGR. This trend has pushed people towards self-employment. At present there are about 80 million self-owned enterprises, employing over 130 million people. The owner of these enterprises usually owns 100% of the equity. In many cases, the value of self-owned enterprises’ equity is more than the networth of the household. It could be a matter of debate whether households who fully own their enterprise do actually need to invest in listed equity. But no asset allocator would advise further equity exposure to a person who has 100% (or more in many cases) of his networth invested in the equity of his own business.

To conclude, I would say, the capital market in India is on a high growth path. The next couple of decades would see material jump in the level of activity; market capitalization; household ownership of listed equity and debt; and the people employed or engaged in the capital market activities. However, extrapolating it to matching earnings growth for all the participants might not be a great idea.

The first half of the financial year FY26 has been good for financial and commodity markets in general. Despite elevated geopolitical concerns, renewed trade war, slowing growth in major economies and emerging deflationary pressures, stock market, crypto assets, and precious metals, and industrial metals performed rather well. Energy and soft commodity prices were lower, indicating good price control. The global central bankers accordingly remained on the easing path.

India however was an outlier in the global context. Indian equities, currency and bond markets were one of the worst performers globally. South Koren equities were the best performing equities in 1HFY26. Chinese and German equities were other notable outperformers. Equity indices of the US, Japan, and the UK also recorded strong gains.

The most notable feature of global markets was the sharp rally in precious metal. The central bankers across emerging markets accelerated their gold accumulation, in view of the geopolitical developments and trade tensions. Silver also joined the rally in the past few months.

India performance – 1HFY26

Indian markets were one of the worst performers globally; sharply underperforming the peers. A short war with Pakistan, several punitive actions (tantamounting to virtual economic sanctions) by the US, slowing earnings growth amidst lagging consumer and investment demand, and persistent selling by the foreign investors weighed heavily on Indian equities and INR. The bond market was also sluggish, with the yield curve steepening. The efforts to stimulate demand by allowing income-tax and GST concessions have so far not yielded the desired results. Regulatory measures to curb excessive speculation in the market impacted overall volumes and level of activity.

The key highlights of the India market performance could be listed as follows:

·         The benchmark Nifty50 gained 4.6% during 1HFY26; while the Midcap (+9.4%) and Small Cap (+9.1%) did much better. Consequently, overall market breadth was positive.

·         Most of the market gains came in 1QFY26, prior to US penal tariffs coming into effect from July 2025. However, four out of six months yielded positive results.

·         The total market capitalization of the NSE is higher by ~9.2%; much more than gains in the benchmark indices – implying that stronger gains have occurred in the broader market.

·         PSU Banks, Metals and Consumer discretionary, were the top outperforming sector. Media, IT Services, pharma, Realty, FMCG, and private banks were notable underperformers.

·         Institutional flows to the secondary equity markets were positive for all six months. 1HFY26 witnessed a total flow of ~INR3154bn, despite net FPI outflow of ~Rs684bn. The correlation of institutional flows with Nifty returns was average (~56%).

·         The bond and currency markets were particularly weak in the 1HFY26. INR lost materially against most major currencies, e.g., GBPINR (-10%), EURINR (-14.6%), JPYINR (-9%) and USDINR (-3.6%). Benchmark yields are higher by 1.5%, despite 75bps cut by RBI and strict control over fiscal deficit. Lending and deposit rates were lower by ~50bps. Call rates are lower by 50-75bps.

·         The overall Indian yield curve shifted higher and steepened. Sharply.

·         The economic growth for FY26 is expected to remain flat at 6.5% (same as FY25). Fiscal balance is expected to be better with FY26BE fiscal deficit projected at 4.4% (vs FY25RE at 4.8%).

·         CPI inflation has eased significantly, averaging below 2% in the 2QFY26, much below the RBI tolerance band. Though RBI expects the inflation to pick up in 4QFY26, professional forecasters are predicting it to stay lower than 4%.

·         Corporate performance in 1QFY26 has been slightly better than the modest estimates, but signs of long-term earning trajectory slowing down are conspicuous.

The behavior of Global markets has always been perplexing for the participants. The past 8-9 months have been no different in that sense. Stock prices, commodities, cryptos, bonds, and precious metals have all moved higher; in many cases without a fundamental case for such an upmove.

2025 is proving to be an interesting year for traders in the Indian stocks. The traders have faced multiple challenges in the past eight months; and had some good opportunities to make extraordinary profit. More notably—

 The Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed) maintained its policy rates at 4.25% to 4.5% range, by a majority vote. It was the first occasion since 1993 when two Fed governors voted against the majority decision. Fed governors, Michelle Bowman and Christopher Waller, wanted a 25bps rate cut at the meeting, concluded on Wednesday.

The current results season (1QFY26) has been rather underwhelming so far. The market expectations for this quarter were already muted. The consensus estimates projected 1QFY26e Nifty50 revenue and profits to grow around 5% yoy, while the broader market earnings were expected to grow at a better 11-12% yoy rate. However, the results declared so far indicate an aggregate revenue growth less than even the nominal GDP growth of ~10%.

Antimicrobial resistance becoming ominous

Antimicrobial resistance (AMR) is fast emerging as one of the most ominous health concerns at global level.

As per the World Health Organization (WHO), “Antimicrobials – including antibiotics, antivirals, antifungals, and antiparasitic – are medicines used to prevent and treat infectious diseases in humans, animals and plants. Antimicrobial Resistance (AMR) occurs when bacteria, viruses, fungi and parasites no longer respond to antimicrobial medicines. As a result of drug resistance, antibiotics and other antimicrobial medicines become ineffective and infections become difficult or impossible to treat, increasing the risk of disease spread, severe illness, disability and death.

AMR is a natural process that happens over time through genetic changes in pathogens. Its emergence and spread are accelerated by human activity, mainly the misuse and overuse of antimicrobials to treat, prevent or control infections in humans, animals and plants.

Antimicrobial medicines are the cornerstone of modern medicine. The emergence and spread of drug-resistant pathogens threaten our ability to treat common infections and to perform life-saving procedures including cancer chemotherapy and caesarean section, hip replacements, organ transplantation and other surgeries.

In addition, drug-resistant infections impact the health of animals and plants, reduce productivity in farms, and threaten food security.”

Please note that AMR is not a future threat. It is unfolding now—insidiously, incrementally, and globally.

Wolf may enter the barn unnoticed

There’s another kind of resistance building—this time in global financial markets.

President Trump is seeking to alter the global terms of trade through tariffs. In a massive exercise his administration is undertaking a review of the US’s trade terms with all countries (except perhaps Russia and North Korea), regardless of the size of their economy and quantum of trade with the US.

Initially, the global markets were reacting with a good deal of volatility to each tariff related announcement coming out of the White House. The Trump administration would take note of such volatility and take a step back. Of late, something has changed - Markets have "priced in" chaos. Markets are becoming immune to such announcements, assuming the proposed tariffs will not be implemented, as has been the case previously. Taking advantage of this market complacency, the US administration has already implemented some tariff proposals, including a 50% tariff on copper imports into the US. Trade deals have been reportedly signed with key trade partners like UK, China, Vietnam, Japan, Indonesia, and Philippines, materially altering the US’s terms of trade with these countries.

It's a classic “boy who cried wolf” dynamic playing out. Markets are becoming resistant to all threatening news, be it trade, geopolitics or climate.

The question to be examined is whether this resistance is materially different from AMR; or it is similar and would eventually weaken the resilience of markets, making them susceptible to sudden collapses?

As of this morning, I have no view on markets susceptibility to sudden collapses, but I do believe that mindless use of Antimicrobial in India (both through prescription and self-medication) is fast assuming epidemic proportions, and could have catastrophic consequences.

Continuing from yesterday…(see In search of Leadership)

As I see it, the current settings of the Indian economy and market are as follows:

Macroeconomic conditions are stable – inflation is under control, fiscal balance is improving, primary deficit is improving faster leaving room for further fiscal stimulus (may be GST rationalization on the top of income tax concessions already announced); terms of trade may improve as more bilateral trade agreements and free trade agreements begin to yield results; monetary policy is growth supportive – liquidity conditions are comfortable, rates cuts have been frontloaded, and current account position is stable.

Financial stability – The health of the financial system is very good. Bank’s balance sheets are stronger than ever with adequate capital and excellent asset quality. Corporates balance sheets are also stronger with accelerated deleveraging in the past 3 years. The government balance sheet is also improving, against the global trend. Settings are thus good for credit and investment cycles.

Growth moderate but stable – The Indian economy is expected to grow at a steady 6.5% annual rate in FY26e. Corporate earnings are expected to grow in the low double digit, accelerating to high teens in FY27. This may not augur well for significant new capacity addition; but nonetheless may keep employment conditions stable.

Consumer demand outlook improving – There are several factors that support an improvement in the domestic consumption demand in the next couple of years. For example, the southwest monsoon that is critical for rural income growth is progressing well. Two, the fiscal stimulus in the form of an effective tax rate cut is beginning to show an impact, as the advance tax collections have shown a decline. Third, the GST rate rationalization on essential household consumption is expected. Fourth, 8^th pay commission recommendations are expected to be implemented wef FY26, substantially increasing the disposable income of government and public sector employees. Fifth, the soft commodity disinflation is under progress, making staples more affordable. Sixth, the consumption demand has lagged for the past couple of years, hence providing a favorable base for growth.

From an investor’s viewpoint, these settings, in my view, imply-

·         The market should trade with an upward bias for most of the 2HFY26 and FY27.

·         The participation should be broader, with most sectors participating.

·         Financials, especially consumer finance, may remain in the lead.

·         Exports may do selectively well, depending on the contours of the trade deals. A global growth recovery in FY27 may improve broader outlook for exports.

·         Domestic consumption growth accelerates. Earnings of the consumer sector that have been on a downward trajectory during the past few quarters, should reverse and become positive. Discretionary consumption (Textile, alcohol, beauty, personal care, healthcare, white goods, etc.) may improve. Up-trading in staples may also be witnessed. Mobile data, budget fashion, food delivery services, quick commerce service, and budget international travel are some areas of consumption with stronger outlook.

·         New capacity addition may not be in focus. Capex may be focused on modernization, optimization (debottlenecking) and automation. Power T&D and mining are the two sectors with high capex visibility.

Consumption may be the new leader

From the above summary, it is reasonable to conclude that consumption could be the dominant theme for the next market up move. I find the following consumption ideas worth closely examining:

Consumer finance – NBFCs, private banks

Aspirational consumption – Mobile data, budget fashion, IMFL, and budget international travel, health insurance, preventive healthcare

Consumer services - food delivery, quick commerce

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In search of new leadership