A Tale of Two Markets: Global Headwinds and India's Resilience

A Tale of Two Markets: Global Headwinds and India's Resilience

The global equity market outlook for the medium to long term presents a story of two different narratives. On one hand, global markets, particularly in the U.S/Europe, face challenges of slowing growth, stretched valuations, and persistent geopolitical tensions. On the other, the Indian equity market stands out as a beacon of resilience, driven by strong domestic fundamentals and a robust growth trajectory.

The global economic landscape presents a complex and uncertain picture. Major economies are grappling with the dual challenges of decelerating growth and persistent inflationary pressures, a phenomenon often described as a "stagflationary tilt." Against this backdrop, central banks are walking a precarious tightrope, attempting to recalibrate monetary policy without triggering a recession or re-igniting inflation. Geopolitical tensions and rising protectionism, particularly in the form of new tariffs, further complicate the outlook, tilting the balance of risks to the downside and hindering a cohesive global recovery.

In stark contrast, India presents a compelling narrative of exceptional resilience and structurally backed outperformance. India has consistently demonstrated an ability to not only withstand global headwinds but also to maintain its trajectory as the world's fastest-growing major economy. This remarkable decoupling is rooted in a robust domestic economy, where growth is primarily fuelled by strong private consumption and strategic government capital expenditure. Unlike many of its peers, India's economic engine is largely self-sustaining and less vulnerable to external shocks. The robustness of the Indian economy is further underscored by recent GDP data. The National Statistics Office (NSO) reported a five-quarter high in GDP growth, surging by 7.8 percent in the first quarter of fiscal year 2026 (April–June 2025). This momentum is significant not only in isolation but also because it occurred amidst challenging global headwinds, including developed economy slow down(US, Europe, Japan),  high U.S. tariff policy uncertainty, high Fed interest rates and geopolitical instability.  

Global Equity Market Outlook

The global economic outlook is characterized by a "widespread deceleration." The OECD projects global growth to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026. This slowdown is particularly noticeable in major economies like the United States, where growth is projected to decline from 2.8% in 2024 to 1.5% in 2025 and 2026. Factors contributing to this include the impact of new tariffs, high policy uncertainty, and tighter financial conditions.

A key risk for global markets is the narrowness of the rally. In the U.S., a significant portion of the S&P 500's gains since early 2023 has been attributed to a few large technology companies, or "hyperscalers," including Nvidia, raising concerns about a potential "AI investment bubble." This concentration of gains on a few stocks suggests a fragile market that could be vulnerable to corrections. A return to broader, more sustainable growth across sectors and regions will be necessary for a healthy bull market.

Indian Equity Market Outlook(Medium term & long term)

In contrast to the global picture, India's equity market is seen as a compelling long-term story. The country's strong domestic consumption, government-led capital expenditure, and a "clean-up" of bank and corporate balance sheets, reforms in GST & FDI are setting the stage for a sustainable private investment cycle & strong & sustainable economic growth . The International Monetary Fund (IMF) projects India's economy to grow at 6.4% in 2025 and 2026, making it the fastest-growing major economy. My projections have always been that India will grow at 8% in FY26( current financial year), which has been validated by the recent numbers for Q1 of FY26(7.8%). This will only improve for next few quarters cause of good monsoon, GST reforms, RBI easy monetary policy(rate & CRR reduction)  & base effect of slower FY25. The negative impact of US tariffs will be manageable(about 0.2%) due to low export orientation of Indian economy & export diversification.

     if you remember my earlier  blogs in early March ( when Trump had just come in) and early April (after he announced his so called “ reciprocal tariffs”) , I had accurately forecasted in both the blogs , that Indian market( Nifty 50) has nearly bottomed out at about 22000(Nifty 50) and going forward , it will go up in the medium and long term and will probably show 20% or more gains in this fiscal year (end of FY26 ) , though it may have short term volatility ( inherent nature of equity markets). Markets have gone up after early March & early April , Nifty 50 is sitting at 24400 today (11% gains) since my earlier blogs, with a good potential to grow more(20% or more gains) by end of FY26. You could revisit those blogs at my blog site (https://indiavalueinvesting.blogspot.com). The learning is that one should ignore the market noises & short-term volatility of “manic depressive” markets and invest with discipline with a long-term horizon and perspective with patience & conviction.

 The Consensus Nifty projections as per analysts(Nomura, JP Morgan , Goldman Sachs, Emkay, Prabhudas etc) is about 26000 to 28000 by end of FY26(March 26) – 7 to 15 % upside from current levels. My projections are a bit more optimistic at about 28000 by FY26 (which means 20% returns in FY26 & 15% from the current levels) , provided, we don’t have any unpredictable geopolitical event like wars or any significant Trump tantrums.

 

Medium-Term (1-2 years) outlook: India is in a more favourable position. While some short-term headwinds, such as a recent slowdown in consumption in FY25(due to largely election year effect) and significant FII outflows, have led to a time correction in the market, the underlying economic fundamentals remain strong. Proposed GST reforms & income tax reduction are expected to boost consumer demand significantly. Steady& Resilient domestic retail inflows, particularly through Systematic Investment Plans (SIPs), provide a solid foundation and a buffer against FII selling, demonstrating the market's growing resilience.  In July , the domestic equity MF flows went up to record of Rs 42K cr(instead of 30 K cr average), showing the maturity and resilience of domestic investors. Valuations for large caps is fair now with Nifty 50(large caps) sitting at 21.5 . Last 4 years PE average (long term) has been 22.4  .  Hence large caps(Nifty 50) is fairly valued with respect to long term averages (5% discount to long term PE). Some market sections like Mid cap & small cap are over-valued & should be touched selectively only. Oil prices have corrected 20% since year beginning & is leading to controlled inflation (1.5% in July) which is going to impact the GDP growth & corporate earnings positively. RBI easy monetary stance( reduced rates by 1% & CRR by 0.5%) will have positive impact on consumption as well as investment cycle

Long-Term outlook(3+ years): India's long-term growth story is underpinned by favorable demographics & structural reforms. A young, digitally skilled workforce and rising urban consumer spending will drive the economy forward. The government's focus on infrastructure development & policies like "Make in India", “ semiconductor mission” will continue to spur economic activity & corporate earnings.

Demographic dividends matter - India’s younger population(median age at 29 years) with a huge proportion in working age , growing middle class with its aspirations & growing urbanization is creating a huge demand for consumption and credit, which is propelling its economy and consequently equity markets in a long term & durable & multi-decadal growth phase . India’s GDP has quadrupled in last 18 years(from 1 Trill $ to 4.2 Trill $ now)@ average rate of 8% growth per year . Consequently, India will become one of the top 2 economies in next 22 years( by 2047- our century of Independence).India will be at 23 -25 Trillion $ size (just after US economy).By PPP(Purchasing Power Parity),method,it will be biggest economy .China will take care of itself ( its slowing down with its primary mover real estate sector in debt crisis) . GDP growth has slowed down from historical 7-8% to 4% this year (because of slowing exports, real estate debt crisis,weak domestic consumption,trade tensions etc)& its economy getting into deflation this year(last few months have been in negative inflation) & its equity markets(China- A share) not doing well in last 6 years.

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Investing Recommendations for Indian Equities 📈

Given the robust domestic growth drivers & suitable demographics, Indian equity market offers attractive opportunities for investors. Instead of chasing a broad-based rally, a selective, bottom-up approach to stock picking is recommended. Here are some of the most promising sectors

• Infrastructure : The government's significant and consistent capital expenditure over the last decade has been a key growth driver. The Indian infrastructure sector is projected to reach a market size of $200 billion in 2025 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 9.6 percent from 2025 to 2033. With a projected increase in private sector capex, sectors like cement, construction/EPC,  power finance are well-positioned for growth.
• Defence & manufacturing – With govt reforms & industry focus on manufacturing & defence &  with "Make in India" initiative & PLI initiative(attracting investment of 2 lac crore in 14 sectors), companies in capital goods, manufacturing and defence are expected to perform well. India defence production went up by 18% in FY25 due to Govt focus on indigenization & export potential. (reached Rs 1.5 Lac crore )
• Financial Services ("Finsumption"): The combination of a strong financial sector and rising consumption (Finsumption) presents a powerful investment theme. Banks, particularly those with a focus on digital innovation & asset quality, are benefiting from increased credit demand. Similarly, housing finance companies are set to gain from higher budgetary allocations & falling interest rate environment. Gold finance companies & NBFCs are also doing well cause of more retail loans & RBI liquidity measures(rates & CRR reduction)
• Renewable Energy: India's commitment to achieving a net-zero carbon footprint by 2070 and its target of 500 GW of renewable energy capacity by 2030 are driving massive investments. This sector, including solar, wind, and energy storage, offers immense potential for growth, supported by government subsidies and a global push for sustainability. Companies with significant presence in renewable sector as well as leading power finance companies will do  well
• Consumer discretionary – Automobiles, consumer durables , hospitality/ hotels : With a projected 7% percent growth in real household spending in 2025, the domestic consumption story remains a key driver of market returns. The rise of the middle class and a shift from essential goods to aspirational purchases creates significant opportunities in consumer discretionary sectors like Automobiles, consumer durables, hospitality/ Hotels. After a period of pressure, the automobile sector is showing signs of recovery. GST rationalization and reasonable valuations make it an attractive bet. The long-term transition to electric mobility also presents a unique opportunity for both traditional automakers and new players.
• Telecom – with improving digitization/digital transformation, 5G adoption, increased broadband/data usage, improving ARPUs(Average Revenue per user) due to tariff hikes, favourable govt policies, this sector will continue to do well & leaders in this sector should be invested
• Healthcare & pharma – Rising affordability, health insurance, rising medical needs , lifestyle diseases, ageing population, major export potential  leads to a consistent & defensive bet.
• E-commerce & Quick commerce : These new but rapidly growing sectors have good potential to create wealth in long term. Ecommerce already accounts for 5-6% share of total retail market in India but its still about one-third of the share in US (16%) and has a great potential . Similarly , quick commerce which started few years back also is rising rapidly & improving its profitability potential in  last few quarters.
• Real estate – Real estate has entered a growth cycle with rising urbanization, aspiring middle class with their housing needs & higher disposable income, reduced RBI rates. Investing in real estate through equity proxies like best & consistently growing Housing finance companies and best REITs( Real Estate Investment Trust like Embassy office REIT) would be advised for diversification, asset allocation, liquidity & lower taxation purposes.

Actionable Investment Strategies for sustainable Wealth Creation

A disciplined approach is paramount to navigating the equity markets successfully. Here are key recommendations for long-term investors:

1. Systematic Investment Plans (SIPs): For the majority of investors, regularly investing a fixed amount through SIPs in diversified equity mutual funds or PMS or direct equity portfolio is the most effective strategy. This approach, known as rupee cost averaging, mitigates the risk of market timing and instils financial discipline.
2. Asset Allocation is Key: Based on your risk profile and investment horizon, a balanced allocation across asset classes - equity , debt , real estate( through housing finance & REIT) & Gold ETF is key . Gold is a strategic diversifying asset , apart from safe haven asset & has given equal or more than equity’s returns in last 10-15 years(about 12-15% returns) and one should invest 10-20% of your portfolio into Gold ETF. One should invest 10-15% in Real estate(through high quality housing Finance stocks & REITs).  I typically invest only my emergency funds (6-12 months expenses) or some funds one might need in short term(within 1 to 2 years)for urgent / family needs in debt funds. Remaining funds(about 70% or more) goes into equity for me, as it gives the best long term returns for wealth creation
3. Focus on Quality & Growth businesses: Prioritize investing in companies with strong balance sheets, consistent cash flows/ earnings, revenue/earnings visibility , great return on capitals(ROE/ROCE) and good corporate governance, available at fair or undervalued prices  in resilient and growing sectors(like few mentioned above) . Such businesses are better positioned to weather economic cycles and deliver sustainable returns. Avoid speculative bets and companies with poor earnings visibility or stretched valuations.
4. Diversification for risk mitigation - Diversify Across Growth-Driven Sectors

• Allocate majorly in blue chip large caps for now, cause of volatility and valuation reasons
• Allocate a minor portion to mid-cap and select small-cap stocks for now, especially those with strong fundamentals in sunrise sectors.
• Diversify internationally—consider partial exposure abroad to mitigate currency risks ,mainly through Index funds(like Nasdaq , S&P500 etc)
• Don’t over diversify like typical mutual funds which typically diversify into 30-50 companies and end up mimicking market results  . Go for high conviction bets with focussed investing , with not more than 20-25 bets / stocks in equities. This will also help you track/ review/ evaluate the businesses/ stocks better.

5. Maintain a Long-Term Horizon: Wealth creation is a marathon, not a sprint. Short-term market fluctuations are inevitable. A patient approach, with an investment horizon of at least 3-5 years or more, is essential to reap the  magic of compounding. Magic of compounding was declared as the 8^th wonder by Albert Einstein.
6. Review, Don't React: Periodically review your portfolio to ensure it remains aligned with your financial goals & targeted returns . However, avoid making impulsive decisions based on market noise or short-term news flow or short term market gyrations.

7. Adopt ‘Buy-on-Dips’

    Take advantage of dips caused by broad corrections to accumulate quality stocks for long term. 

Conclusion

In conclusion, the outlook for the Indian equity market for 2025 and 2026 is promising, supported by a strong domestic economy and a revival in corporate earnings. While global factors may introduce intermittent volatility, a disciplined, long-term investment strategy focused on quality , growth & adequate diversification/ asset allocation is well-positioned to generate significant wealth.

  

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Ignore the market noises & invest with discipline: Current market outlook with investment strategies & recommendations

   

Hey Friends,

  Am back again on my long-term equity investing related blog at an interesting juncture.

 

     if you remember my earlier  blogs in early March ( when Trump had just come in) and early April (after he announced his so called “ reciprocal tariffs”) , I had accurately forecasted in both the blogs , that Indian market( Nifty 50) has nearly bottomed out at about 22000(Nifty 50) and going forward , it will go up in the medium and long term and will probably show 20% gains in this fiscal year (end of FY26 , March 26) , though it may have short term volatility ( inherent nature of equity markets). Markets have gone up after early March & early April (first & second blogs) ,. Nifty 50 is sitting at 24600 today (12% gains) since my earlier blogs. You could revisit those blogs at my blog site (https://indiavalueinvesting.blogspot.com). The learning is that one should ignore the market noises & short term volatility of “manic depressive” markets and invest with discipline with a long term horizon and perspective with patience & conviction.

 The Consensus Nifty projections as per analysts is about 27000 by end of FY26(March 26) – 10% upside from current levels. My projections are a bit more optimistic at about 28000 by FY26 (which means 20-22% returns in FY26 & 14% from the current levels) , provided, we don’t have any unpredictable geopolitical event like wars or any significant Trump tantrums.

 

   The Indian equity market stands at a pivotal juncture, offering a compelling narrative for long-term wealth creation. Despite some near-term headwinds from global trade tensions & geopolitical events , the domestic economic engine remains robust, setting the stage for continued growth in 2025 and 2026. This data-driven analysis provides a comprehensive outlook, including return projections and actionable investment strategies & recommendations for investors with an eye on the future.

Following are the key reasons for my optimism & projections

• Tarriff / trade war related fears have been already discounted in the prices & India on stronger wicket on tariff war – Markets have discounted Trump’s tariff tantrums and started going up globally after all the bad news were discounted in the prices. Besides good news like Trump’s backoff might come in after his meeting with Putin this week .  Though he has announced 50% tariffs on India due to Russian oil imports , its going to have a minimal 10-15 Billion $ impact on Indian exports in FY26 (0.2 to 0.3% effect on India GDP in FY26) , as India is not  a very export oriented economy like China , Japan etc  . Anyway, it’s a tactical blackmailing tactic from his side to get some gains from India in BTA negotiations in few sensitive sectors . In fact, some of the IT hardware and electronic / smart phone manufacturers from US, Europe like Apple have started planning to shift their production to India, after this tariff drama as Indian situation is definitely more predictable and friendly, when compared to China.  So , Indian economy stands to gain on certain sectors like IT hardware , electronics, automobile  etc cause of this tariff drama in long term as “China plus 1” procurement strategy will become stronger to diversify these kind of supply chain related risks

•  US & global recession fears are overblown – The fears on US recession is overblown . US economy, just like Indian economy is very resilient and proved wrong similar rumours of impending recession in last couple of years. .

• Oll prices and inflation coming down for India – Oil prices have come down from 83$ per barrel in Jan to less than 66$(20% reduction). This is going down due to US increasing its gas/ oil production to improve its reserves , OPEC increasing its Oil supply , slowdown in developed world like EU/ US and control in geopolitical situations like middle east . This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices, reduced inflation, reduced RBI rates etc. This will also improve the real GDP growth rate (Nominal growth rate minus inflation)

• RBI monetary has become very accommodative & dovish – RBI  surprised everybody positively in June by unexpectedly reducing the repo rate by 0.5%( 1% reduction YTD) & reducing CRR by 1% by year end, thereby freeing 2.5 lac crore Rs(about $30 billion) to be lent to industry and consumers by banks/NBFCs  . Besides, it has eased the tight liquidity situation by about 12 lac crore Rs (about $140 Billion, equivalent to 3.5 % of GDP ) through its OMO and Dollar-INR long term swap tools, generous dividend to government (2.8 lac cr) & reduction of CRR (2.5 lac cr) since January and is planning to infuse additional Rs 2 lac crore($24 Bil ) more later. . This is and will drive the markets up. The lower inflation projections because of lower oil/food prices and better monsoon(last year) will help RBI to reduce the repo rates lower( repo rate is forecasted to come to 5% from 5.5% now)  which will boost the credit cycle as well as stock markets up as cost of capital will come down .

•  Indian Market fairly valued now , especially large caps  

While some  pockets of Indian markets , especially small caps and mid caps are clearly over-valued , large caps(Nifty 50 companies) are fairly valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet Valuation Golden indicator(market capillarization / GDP ratio)      

a.  As per PE trailing ratios , Indian market(Nifty 50 – large caps) is sitting at 21.6 .  Last 4 years PE average(long term) has been  22.4(Mid 2021 onwards)  .  Hence large caps(Nifty 50) is fairly valued with respect to long term averages (4% discount to long term PE)

b. As per PE 1 year Forward ratios , Indian market(Nifty 50) is at 19  . Last 5 years PE average is 19.6  . Hence we are fairly valued for large caps(3% discount to long term 1 year forward PE)

c. As per market cap / GDP ratio (Warren Buffet indicator)as per reliable data sources ,  the Indian market cap/ GDP ratio is 134%(As per Gurufocus.com).  As per this, Indian markets are over-valued (>111%) .However , this is primarily cause of Mid caps and Mini caps’ overvaluation . Large caps are fairly valued , as discussed above .

This shows that while Nifty 50(large cap companies) are fairly- valued, mid-cap and small cap are overly valued.

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in Q1 , due to various reasons like Trump tariffs , Geopolitical situation , attractive 10  years treasury rates etc has started coming down. Its at 98 now. INR was going down due to above reasons and FIIs selling off in India to move their money to safer heavens in US . This has reversed since few months . In fact , INR has upvalued a bit . FIIs have withdrawn Rs 1.1 Lac crore from Indian markets till now(YTD) leading to lots of volatility . This  FII outflow will go down now with dollar going down a bit . These trends will be positive for India as strong and stable INR is good for FII returns and make Indian equity more attractive.  With US debt (@36 Trillion$@ 120% of US GDP) projected to go up further with Trump’s latest  financial Bill, dollar has a good potential to go further down in medium & long term. With Fed expected to reduce the Fed rate soon, Dollar will go down further. Structurally weaker dollar with make Indian equity more attractive for FIIs

• Incorrect narratives on Indian economy & corporate slowdown & Green-shoots appearing recently-  There has been a lot of narratives (seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called experts & media who influence the investing community through their narratives ignore the fact that this slow down last fiscal year(FY25 at 6.5%) was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of last Fiscal quarter( elections were in  Q1 in April to June). This led to significant reduction on Government capex & other expenditures which in turn had negative impact on private capex and earnings growth too. The GDP growth should show up better numbers (8% or more) this fiscal FY26 ( this quarter Q2 onwards) because of favourable base effect (Q1 & Q2 of FY25 having elections related slow down) , lower inflation projections at 3.1% ( as per RBI inflation projections), good monsoon driving rural economy & favourable RBI monetary & liquidity stance in reducing the interest rate(by 1%) and reducing the CRR by 1%. This will ensure that FY26 has at least 7.5% growth(6.5% in  Q1 , 8% Q2 onwards). This better GDP will translate into 10.5% Nominal GDP growth(real GDP plus inflation =7.5% + 3%) which is turn will lead to better corporate earnings (13-14% instead of current consensus estimates of 10%). In fact green shoots have already started showing up which market players have been ignoring. Manufacturing PMI in July reached a 16 month high of 59.1(anything more than 50 means expansion). Services PMI in July was at 10 months high of 60.4(has been above 60 for last 3 months). Consumer durables/ Home appliances orders jumped by 7%(YOY) in July. Similarly , mobile phones jumped by 7-8%(YOY) in July and FMCG grew by 8.6% in July.

• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don’t have too many choices . 

Globally , India is still the fastest growing economy with expected GDP growth rates  , returning back to 7.5 to 8 % . With inflation of about 3.5%, this could mean a nominal growth rate of about 11% or more (nominal GDP is Real GDP plus inflation).Its the only major economy to grow at double digit Nominal GDP growth rate. India is the 4th largest economy today( we have beaten Japan this year) , contributing to about 4% of world economy &  going to beat Germany by 2027( as per IMF estimations) to become the 3rd largest economy . China , the second largest economy will grow at 4 % & US will grow at 1.5% in 2025 and EU/ Germany/Japan is almost in recession with almost nil growth rate . Can somebody afford to ignore this size of Indian economy growing at the fastest speed ( Size and speed matters) ??. In fact, FIIs started returning back to Indian markets with vengeance March/April onwards & that’s one of the reasons of 12% rise in Nifty 50 since early March. Our good friend Trump marvellously quoted recently that India is a dead economy. Just to enhance his immense knowledge & wisdom, RBI governor Mr Sanjay Malhotra recently quoted that this dead economy will contribute 18% of global economic growth  in 2025, much more than US, which will contribute 11%.

• Resilient Domestic Flows: While Foreign Institutional Investors (FIIs) have shown some volatility, with outflows in July 2025, Domestic Institutional Investors (DIIs) and retail investors have provided a strong counterbalance. Provisional data for August 12, 2025, showed DIIs as net buyers, absorbing the FII selling and underscoring the growing maturity of the Indian market. In July , the domestic equity MF flows went up to record of Rs 42K cr(instead of 30 K cr average) and SIP flows touched a record of 28K crore , showing the maturity and resilience  of domestic investors(DIIs and retail investors)

• Demographic dividends matter – India’s younger population with a huge proportion in working age , growing middle class with its aspirations & growing urbanization is creating a huge demand for consumption and credit, which is propelling its economy and consequently equity markets in a long term & durable growth phase . Consequently, India will become one of the top 2 economies in next 22 years( by 2047- our century of Independence) , of  25 -30 Trillion $ size (just after US economy) . China will take care of itself ( its slowing down with its primary mover real estate sector in debt crisis) and its economy getting into deflation this year( last few months have been in negative inflation) & its equity markets(China- A share) have grown about 6% only in last 6 years (since Aug  2019).

 

Market Valuations and Return Projections

The benchmark Nifty 50 index is currently trading at a Price-to-Earnings (P/E) ratio of approximately 22 times its estimated FY26 earnings. This is close to its long-period average, suggesting that while the market is not cheap, it is reasonably valued, especially when factoring in the anticipated earnings growth(14-15% on average over last 15-20 years) & one of the best return on capital(ROE@14% ,only next to US at 20%) , among all the markets .

 

Return Projections:

Several leading financial institutions have put forth their projections for the Indian markets:

• JPMorgan has a "bull case scenario" with the Nifty 50 potentially reaching 30,000 by April 2026, driven by a strong earnings recovery.
• Emkay Global Research has maintained a Nifty 50 target of 26,000 for March 2026.
• Morgan Stanley has a bull case scenario for the Sensex to hit the 1,00,000 mark by June 2026(equivalent to >30,000 on Nifty)
• My projection/ estimate is Nifty 50 reaching about 28000 by FY26(March 26)

While these are projections and not guarantees, they reflect a prevailing optimism about the market's direction over the next 12 months. An annualized return in the range of 12-20% from the equity markets over this period is a reasonable expectation, contingent on stable global conditions and continued domestic economic performance.

Recommendations - High-Growth Sectors to Watch & invest

For investors looking to build a long-term portfolio, focusing on sectors with structural tailwinds is crucial. The following sectors are poised for significant growth in 2025 and 2026:

• Infrastructure and Manufacturing: With sustained government capital expenditure in infrastructure & defence, the "Make in India" initiative & PLI initiative(attracting investment of 2 lac crore in 14 sectors), companies in capital goods, construction, and defence are expected to perform well. India defence production went up by 18% in FY25 due to Govt focus on indigenization & export potential. ( reached Rs 1.5 Lac crore)
• Banking and Financial Services (BFSI): A pickup in economic activity(high GDP growth), favourable monetary & liquidity stance of RBI(RBI rate cut & CRR cut and liquidity measures) , Income tax rationalization, better monsoon and low inflation(@1.5% in July) and rising credit demand will benefit well-capitalized public and private sector banks, NBFCs and Gold finance & Insurance companies.
• Renewable power/Energy: India's ambitious target of 500 GW of renewable energy capacity by 2030 will continue to fuel growth in green energy & renewable power companies. Even power finance companies (like PFC, REC) will do well in long term.
• E-commerce & Quick commerce : These new but rapidly growing sectors have good potential to create wealth in long term. Ecommerce already accounts for 5-6% share of total retail market in India but its still about one-third of the share in US (16%) and has a great potential . Similarly , quick commerce which started few years back also is rising rapidly.
• Consumer Discretionary: As disposable incomes rise, there is significant growth potential in sectors like tourism, hospitality, and automobiles.
• Real estate – Real estate has entered a growth cycle with rising urbanization, aspiring middle class with their housing needs & higher disposable income. Investing in real estate through equity proxies like best & consistently growing Housing finance companies and best REITs( Real Estate Investment Trust like Embassy office REIT) would be advised for diversification , asset allocation, liquidity & lower taxation purposes.
• Telecom – with improving 5G adoption , digital transformation , increased broadband/data usage, improving ARPUs(Average Revenue per user) due to tariff hikes, favourable govt policies, this sector will continue to do well & select leaders in this sector should be invested
• Healthcare & pharma – Rising affordability, health insurance, rising medical needs , lifestyle diseases, ageing population, major export potential  leads to a consistent & defensive bet.

 

Actionable Investment Strategies for sustainable Wealth Creation

A disciplined approach is paramount to navigating the equity markets successfully. Here are key recommendations for long-term investors:

1. Systematic Investment Plans (SIPs): For the majority of investors, regularly investing a fixed amount through SIPs in diversified equity mutual funds or PMS or direct equity portfolio is the most effective strategy. This approach, known as rupee cost averaging, mitigates the risk of market timing and instils financial discipline.
2. Asset Allocation is Key: Based on your risk profile and investment horizon, a balanced allocation accross asset classes - equity , debt , real estate( through housing finance & REIT) & Gold ETF is key . Gold is a strategic diversifying asset , apart from safe haven asset & has given equal or more than equity’s returns in last 10-15 years(about 12-15% returns) and one should invest 10-20% of your portfolio into Gold ETF. One should invest 10-15% in Real estate(through high quality housing Finance stocks & REITs).  I typically invest only my emergency funds (6-12 months expenses) or some funds one might need in short term(within 1 to 2 years)for urgent / family needs in debt funds. Remaining funds(about 70% or more) goes into equity for me, as it gives the best long term returns for wealth creation
3. Focus on Quality & Growth businesses: Prioritize investing in companies with strong balance sheets, consistent cash flows/ earnings, revenue/earnings visibility , great return on capitals(ROE/ROCE) and good corporate governance, available at fair or undervalued prices  in resilient and growing sectors(like few mentioned above) . Such businesses are better positioned to weather economic cycles and deliver sustainable returns. Avoid speculative bets and companies with poor earnings visibility or stretched valuations.
4. Diversification for risk mitigation - Diversify Across Growth-Driven Sectors

• Allocate majorly in blue chip large caps for now, cause of volatility and valuation reasons
• Allocate a minor portion to mid-cap and select small-cap stocks for now, especially those with strong fundamentals in sunrise sectors.
• Diversify internationally—consider partial exposure abroad to mitigate currency risks ,mainly through Index funds(like Nasdaq , S&P500 etc)
• Don’t over diversify like typical mutual funds which diversify into 30-50 companies and end up mimicking market results  . Go for high conviction bets with focussed investing , with not more than 20-25 bets / stocks in equities. This will also help you track/ review/ evaluate the businesses/ stocks better.

5. Maintain a Long-Term Horizon: Wealth creation is a marathon, not a sprint. Short-term market fluctuations are inevitable. A patient approach, with an investment horizon of at least 3-5 years or more, is essential to reap the  magic of compounding. Magic of compounding was declared as the 8^th wonder by Albert Einstein.
6. Review, Don't React: Periodically review your portfolio to ensure it remains aligned with your financial goals & targeted returns . However, avoid making impulsive decisions based on market noise or short-term news flow or short term market gyrations.

7. Adopt ‘Buy-on-Dips’

Take advantage of dips caused by broad corrections (which remain likely in 2025) to accumulate quality stocks for long term. 

Conclusion

In conclusion, the outlook for the Indian equity market for 2025 and 2026 is promising, supported by a strong domestic economy and a revival in corporate earnings. While global factors may introduce intermittent volatility, a disciplined, long-term investment strategy focused on quality , growth & adequate diversification/ asset allocation is well-positioned to generate significant wealth.

 

Happy investing

Cheers Amardeep

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Current equity market outlook (2025 & ahead) & Recommendations

Hey Friends,

 

  Am back again on my long-term equity investing related blog at an interesting juncture. if you remember my earlier  blogs in early March ( when Trump had just come in) and early April (after he announced his so called “ reciprocal tariffs”) , I had accurately forecasted in both the blogs , that Indian market( Nifty 50) has nearly bottomed out at about 22000(Nifty 50) and going forward , it will go up in the medium and long term and will probably show 20% gains in this fiscal year (end of FY26 , March 26) , though it may have short term volatility ( inherent nature of equity markets). Markets have gone up after early March (first blog) , though there was an extreme volatility in early April(before my second blog) due to unpredictable nature of Trump’s tariff mania. Nifty 50 is sitting at 25000 today (14% gains) since my earlier blogs. You could revisit those blogs at my blog site (https://indiavalueinvesting.blogspot.com)

 I obviously maintain my forecast, which means that Nifty 50 may go to about 27000 by end of FY26(provided, we don’t have any unpredictable geopolitical event like wars or any Trump turbulent tantrums). In fact, it may do better than that too, in absence of such events.  

Following are the key reasons for my optimism

• Tarriff / trade war related fears have been already discounted in the prices – Markets fell  in double digits in first week of April after Trump mania & have started going up globally after all the bad news were discounted in the prices and good news like Trump’s backoff( staying his tariff drama for 3 months till early July & launching of trade negotiations with all including China, Europe etc(In fact trade deal has closed with new nations like UK already). India too is about to close the same with US through its BTA(Bilateral Treaty Agreement) this month, as per the announcements.

•  US & global recession fears are overblown – The fears on US recession is overblown . US economy, just like Indian economy is very resilient and proved wrong similar rumours of impending recession in last couple of years. . In fact, last week, US employment data was much better than expectations in May (adding 139000 jobs) showing the robustness of US economy, just like India, despite Trump tantrums.  Secondly, Trump tactics is more of a bullying drama to bring the stakeholders to table with a first mover advantage . He & all the global leaders know that tariff war is a zero-sum game & lose-lose situation for all . People have started negotiating and striking trade deals, defusing the trade war and recession potential. In fact US market has rebutted these recession fears by appreciating by 20%(S&P 500 touched 6000 from about 4800 in early April after Trump tariff mania).

• India relatively on stronger wicket on Tariff war -  India is a very much domestically focussed economy (Merchandise/goods Exports at about 450 Bill $- is just 11% of its GDP,) while its 20% for China and higher for many other emerging economies and other countries. Out of that , Indian exports to US is just 90 Bil $(about 2% of India GDP) . That’s one of the reasons why Nifty went down by single digits (5%) in early April after tariff announcements , when others fell by double digits including US & China markets. In fact, some of the IT hardware and electronic / smart phone manufacturers from US, Europe like Apple have started planning to shift their production to India, after this tariff drama as Indian situation is definitely more predictable and friendly, when compared to China.  So , Indian economy stands to gain on certain sectors like IT hardware , electronics, automobile  etc cause of this tariff drama in long term as “China plus 1” procurement strategy will become stronger to diversify these kind of supply chain related risks

• Oll prices and inflation coming down for India – Oil prices have come down from 86$ per barrel to less than 65$(about 25%). This is going down due to US increasing its gas/ oil production to improve its reserves , OPEC increasing its Oil supply , slowdown in developed world like EU, US .This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices, reduced inflation, reduced RBI rates etc. This will also improve the real GDP growth rate(Nominal growth rate minus inflation)

• RBI monetary has become very accommodative & dovish – RBI  surprised everybody positively last week by unexpectedly reducing the repo rate by 0.5%( 1% reduction YTD) & reducing CRR by 1% by year end, thereby freeing 2.5 lac crore Rs(about $30 billion) to be lent to industry and consumers by banks/NBFCs  . Besides, it has eased the tight liquidity situation by about 12 lac crore Rs (about $140 Billion, equivalent to 3.5 % of GDP ) through its OMO and Dollar-INR long term swap tools, generous dividend to government (2.8 lac cr) & reduction of CRR (2.5 lac cr) since January and is planning to infuse additional Rs 2 lac crore($24 Bil ) more by Mid year . This is and will drive the markets up. The lower inflation projections because of lower oil prices and better monsoon(last year) will help RBI to reduce the repo rates lower( repo rate is forecasted to come to 5% from 5.5% now)  which will boost the credit cycle as well as stock markets up as cost of capital will come down .

•  Indian Market fairly valued now , especially large caps  

 While some  pockets of Indian markets , especially small caps and mid caps are clearly over-valued , large caps(Nifty 50 companies) are fairly valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet Valuation Golden indicator(market capillarization / GDP ratio)      

         a.  As per PE trailing ratios , Indian market(Nifty 50 – large caps) is sitting at 20.5 .  Last 5 years PE average has been  22.6  .  Hence large caps(Nifty 50) is fairly valued with respect to long term averages 

         b. As per PE 1 year Forward ratios , Indian market(Nifty 50) is at 19.5 . Last 5 years PE average is 20  . Hence we are fairly valued for large caps

         c. As per market cap / GDP ratio (Warren Buffet indicator)as per reliable data sources ,  the Indian market cap/ GDP ratio is 106%(As per Gurufocus.com).  As per this, Indian markets are fairly valued (91% to 111%) .

This shows that while Nifty 50(large cap companies) are fairly- valued, mid-cap and small cap are overly valued.

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months, due to various reasons like Trump tariffs , Geopolitical situation , attractive 10  years treasury rates etc has started coming down. Its at 99 now. INR was going down due to above reasons and FIIs selling off in India to move their money to safer heavens in US . This has reversed since few months . In fact , INR has upvalued by 2% ( from 87.6 in Feb  to 85.8 now  per USD). These trends will be positive for India as strong and stable INR is good for FII returns and make Indian equity more attractive. With US debt (@36 Trillion$@ 120% of US GDP) projected to go up further with Trump’s latest budget related financial Bill(reason for his dirty feud with Ellon Musk), dollar has a good potential to go further down in medium & long term . Structurally weaker dollar with make Indian equity more attractive for FIIs

• Incorrect narratives on Indian economy slowdown -  There has been a lot of narratives (seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called experts & media who influence the investing community through their narratives ignore the fact that this slow down last fiscal year(FY25 at 6.5%) was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures which in turn had negative impact on private capex and earnings growth too. Businesses ( especially export oriented) also got impacted because of geopolitical tensions and developed economies slow down(EU , US , Japan etc). However, these are things of the past (especially election related slow down) . The GDP growth has already shown good numbers @ 7.4% in Q4 of FY25 & should show up better numbers (8% or more) this fiscal FY26 ( Q2 onwards) because of favourable base effect (Q1 & Q2 of FY25 having elections related slow down) as well as lower inflation projections at 3.5% ( as per RBI inflation projections cause of lower oil prices & normal monsoon projections)

• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don’t have too many choices . 

           Globally , India is still the fastest growing economy with expected GDP growth rates  , returning back to >8 % . With inflation of about 3.5%, this could mean a nominal growth rate of about 12% or more (nominal GDP is Real GDP plus inflation). India is the 4th largest economy today( we have beat Japan this year) , contributing to about 4% of world economy . Its going to beat Germany by 2027( as per IMF calculations) to become the 3rd largest economy . China , the second largest economy grew at 2.8 % & US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate . Can somebody afford to ignore this size of economy growing at the fastest speed ( Size and speed matters)??. In fact, FIIs have started returning back to Indian markets with vengeance March onwards & that’s one of the reasons of 14% rise in Nifty 50 since early March.

Key Recommendations & growth/return  projections :

Growth / return projections - When it comes to NIFTY 50 targets , one should avoid venturing into target predictions cause of market volatility and unpredictable nature in short & medium term .  However , historically NIFTY 50 & Sensex   has given about 14% CAGR returns(15% plus including dividends). As the market(Nifty 50) is fairly valued (as per Warren indicator & as per PE trailing and forward ratios), I would like to shoot for 8-10%  further upside for NIFTY 50 by end of FY26(27000-27500) from current levels(by March end of 2026), which translates to 18-20%. of growth for this full fiscal FY26. In long and medium term , there is no reason why NIFTY 50 won’t continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more (Alpha)  & double your investments every 4 years, which is quite decent by any standards. This is equivalent to 16 times in 16 years by magic of compounding (We underestimate the magic of compounding which can be achieved only through long term investing)  .

Recommendations –

1. More attractive sectors  as per my analysis ( considering growth projections , current valuation , domestic market focus in this slowing global economy) are large cap & well-moated(having strong competitive advantages & Financials/ growth) quality businesses in BFSI(Private Banking , NBFCs & Insurance), Defence, Real estate , Auto , Infra/construction , capital goods, , Power including Power Finance, Energy(like Reliance), Pharma/ healthcare, Telecom , Chemicals & Travel/Hospitality sectors.  
2.  If you don’t want to take the risk of picking up the right businesses / stocks , you could invest through index funds( like NIFTY50 ETF or NIFTY100 ETF )too -low AMC cost and safe method of investing . 
3.    Go for Gold ETFs - I would also advice you to invest in Gold ETF funds(electronic gold) for 10-15% of your portfolio value  as its the best insurance against black swan events / wars and uncertainties like Trump mania. It will help you to cope up in extreme volatile situations as well as sudden emergency liquidity requirements without selling equity at low prices . In last 10-20 years , Gold has done as good or better than equities and hence Gold has become a mandatory & strategic diversifier . In last 10 years , Gold has done better @14% annualized returns while equity(Nifty 50) has given 12% . In last 20 years ,Gold has given 12% while equity has given 14% returns.With many global financial/ geopolitical uncertainties & black swan events like Covid,Gold has done better in recent times (past 5-10 years) than equity. With Central banks (China , Russia, Japan, India , Europe)increasingly buying bigger proportion in terms of Gold & Consumers increasingly going for Gold ETFs,gold price is expected to increase at >=12%
4.  Invest in quality REITs-  For purposes of asset allocation , which is an important diversification tool , one should invest in  real estate too, apart from Gold . The best & most effective way to invest in best Real estate is thorough quality REITS(like Embassy office REIT, Mindspace REIT) as REITs are best in terms of immediate liquidity(tradable on NSE/BSE), better tax efficiency( equity taxation), less risk as it can be bought at a small amount also(even at Rs 100).  They typically give 5-6% dividend (much higher than equities at 1.5% average) and capital appreciation of 10-12 % or more on top of the dividends, giving total of 15-18% returns which is quite decent with much less risk than equities. I would suggest 10-15% of your portfolio should go for quality REITs
5. Last but not the least , in these times of big volatility , pl remember that your temperament/ calmness & patience is more important than intellect and knowledge.  And avoid leverage for equity investing always 

H     Happy Investing 😊

 

 

 

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Timeless Investment Wisdom of the Oracle of Omaha: Warren Buffett’s Powerful 10 commandments on investing

 

Timeless Investment Wisdom of the Oracle of Omaha: Warren Buffett’s Powerful 10 commandments on investing

  Warren Buffet – my investment mentor & guru, announced his retirement this month, which was a shock for the investing world & myself, though he was quite aged @ 94 years.  The global Investing world & Berkshire Hathaway (the insurance company behemoth he built and led along with his famous partner & another investment guru Charlie Munger) will never be the same without him. He has been fondly named “Oracle of Omaha” because the global investment community very closely followed his investment picks and comments on the market, while he lives and works in Omaha (a city in US) & not in famous Wall Street.  His consistently market beating achievements in last 60 years (1964 to 2024), when his investments generated about 20% average IRR/returns for himself and Berkshire Hathaway (multiplying the investments to 55000(Fifty-Five thousand times in 60 years) , double the US S&P 500 returns (10.2% in the same period) , speaks for itself.

Warren Buffett, is more than just a wildly successful investor; he's a fountain of wisdom whose teachings have guided generations of aspiring financiers, investors and everyday savers alike. His philosophy, built on a bedrock of discipline, patience, and a deep understanding of business fundamentals, offers a refreshing counterpoint to the often frenetic and speculative nature of the market.

For anyone looking to navigate the complexities of investing, delving into Buffett's learnings isn't just advisable – it's essential. Here, I  distil some of his most profound insights, learnings and memorable quotes that continue to resonate today.

1. Invest in What You Understand: The Circle of Competence

Perhaps one of Buffett's most famous tenets is to stay within your "circle of competence." This means investing in businesses whose operations, revenue models, and competitive advantages you can genuinely comprehend. This is why he has historically stayed away from tech stocks until he felt comfortable with the industry (Apple being a rare and successful exception, only towards his last decade in 2016). He never invested in Microsoft( though he has been a great friend of Bill Gates, Microsoft founder) or Google , Facebook etc

He says "Risk comes from not knowing what you're doing."

Chasing hot tips or complex financial instruments you don't understand is a recipe for disaster. Instead, focus on industries and companies where you have a genuine interest and can make informed judgments about their long-term prospects. If you can't explain the business to a child, you probably shouldn't be investing in it.

2. Focus on the Long Term (Magic of compounding works only in long term )

“Our favourite holding period is forever.”

Buffett doesn't believe in timing the market or chasing short-term gains. His long-term investments—like Coca-Cola, American Express, and Geico—are examples of businesses he’s held for decades, reaping compounded returns.

Learning: Time in the market is more important than timing the market. Patience & magic of compounding are superpowers in investing

3. Buy Wonderful Companies at Fair Prices

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

“ Price Is What You Pay, Value Is What You Get”

“ Don’t buy stocks , buy wonderful businesses(companies) underlying them”

Buffett prioritizes quality over cheap valuations. A strong brand, sustainable competitive advantage (or "moat"), and consistent earnings & Returns on capital(ROE) matter more than just a low stock price. Over time, Buffett shifted from buying “cheap” companies to buying great businesses at reasonable prices, recognizing that quality compounds wealth. He was inspired by Charlie Munger to make this change in investing strategy over his earlier pure value investing strategy of buying cheaper businesses/ stocks(inspired by his guru Benjamin Graham – father of value investing)

Learning: Value investing isn’t just about low prices—it's about paying the right price for quality.

4. Emotional discipline

“Be fearful when others are greedy, and greedy when others are fearful.”

“The stock market is  manic depressive.”

He reminds us that markets are driven by human emotions—irrational swings are normal. Staying rational and focused on fundamentals is essential. One of Buffett’s most quoted lines(His above quote on greedy/ fearful) speaks to contrarian investing. He believes in stepping back when the market is euphoric and stepping in when others panic—buying undervalued assets when fear drives prices down. For example , he made bold investments during Great Financial crisis after LEHMAN collapse in 2008 , when he made significant investments in big banks like Goldman Sachs , GE , Dow chemicals & Swiss Re in billions of $, when everybody was playing safe , selling and hoarding cash after selling . Similarly,  he bought significant stakes in a Gold mining company(Barrick Gold) as Gold was the only safe haven & 5 big Japanese well diversified conglomerates/ trading giants like Mitsubishi , Sumitomo, Mitsui etc( in Billions of $)during Covid market crisis in 2020.

Learning: Emotional discipline is crucial. Don’t follow the herd—stay rational when markets are irrational.

5. Cash is Not Trash—But Don’t Hoard It

“Cash combined with courage in a crisis is priceless.”

Buffett keeps ample cash on hand not because he fears the market, but because it gives him flexibility. In downturns, this cash lets him act quickly to scoop up bargains while others are paralyzed.

Learning: Liquidity is power. Don’t over-leverage. Keep reserves ready for opportunities.

6. Learn Continuously

“The best investment you can make is in yourself.”

Buffett is a voracious reader, reportedly reading 5–6 hours a day. He believes in lifelong learning, curiosity, and investing in personal growth.

Learning: Skills compound like money. Invest time in knowledge—it yields lifelong dividends.

7. Reputation and Integrity Matter

“It takes 20 years to build a reputation and five minutes to ruin it.”

For Buffett, trust and ethics are foundational. His partnerships and deals often rely on character and mutual respect as much as financials. Buffett's emphasis on integrity and ethical behaviour is a cornerstone of his success and a crucial lesson for any investor or business leader.  For example , he could never recommend investing in Adani group companies in India after the recent issues regarding their corporate governance related investigations/ allegations from US Justice department . So would be the case for IndusInd bank in India.

"Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless." That’s is famous quote

Learning: Success isn’t just about returns—it's about integrity. Reputation is your most valuable asset.

8. Avoid businesses with high Debt and Leverage

"If you’re smart, you don’t need it; if you’re dumb, you shouldn’t be using it."

Buffett has long warned against the dangers of investing in businesses/ stocks with excessive debt. While leverage can amplify gains, it can also destroy wealth quickly. His cautious use of debt has helped Berkshire Hathaway remain stable through even the most turbulent times.

Learning : Over leveraging has been the key cause of financial failures and bankruptcies of big icons in the past and hence avoidable in investing. Same applies in personal life too . He advocated against leveraging for buying equity.

9. Capital Preservation Above All

“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
This golden rule is the cornerstone of Buffett’s philosophy. He emphasizes that protecting your capital is more important than chasing high returns. Even though losses are sometimes inevitable, the mindset of caution and discipline is what sets successful investors apart

Learning – Avoiding big risks and losing money/capital is as important as making significant returns as the losses reduces the average returns significantly for the portfolio

10. Selectivity and Patience

• “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
  Buffett counsels that great investment opportunities are rare, so when they appear, act decisively and with conviction
• “At the business school, I tell them that they would all be better off if when they got out of school somebody gave them a card with 20 punches on it and every time they made an investment decision, they used up a punch.”
  This metaphor encourages investors to be highly selective, treating each investment decision as precious. 

• “Don’t buy stocks , buy wonderful businesses(companies) underlying them” .  Warren is asking people here to have a business & owner oriented mindset instead of stock oriented mindset and buy selective & wonderful businesses rather than stocks.

  Learning: Patience & selectivity is the cornerstone of wise & safe investing, rather than chasing the hot & risky fads for high returns

 

Final Thoughts

Warren Buffett’s wisdom is as relevant today as ever. His teachings remind us that successful investing is less about chasing fads and more about discipline, patience, and rational decision-making. By focusing on value, thinking long term, and continuously learning, investors can build lasting wealth—one wise decision at a time

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Current Indian Equity market outlook in this “manic depressive market " times

 

Hi!  Friends ,

 

   Am back again on my long term equity investing related blog at an interesting juncture  , when global markets have been very volatile again , reminding us of scary Covid days , when market used to tumble by 3-5% every day .  US markets tumbled by 11% in just 2 days last week , destroying wealth by 6 Trillion dollars just in US(approximately 1.5 times India GDP) & 10 Trillion $ globally , in just 2 days  . This reminded me of legendary Benjaman Graham (Guru of Warren Buffet and father of value investing) who famously said “ Mr Market is a manic depressive guy .   When he is in a good mood, he gets greedy and quotes ridiculously high prices, but when he is feeling depressed and fearful, he is willing to sell you the same stocks for rock bottom prices.” Graham  also said famously that “ In short run , market is a voting machine(unpredictable) but in the long run , it’s a weighing machine(reliable)” . Lets recall these timeless quotes and stay calm and not take any impulsive decision, swayed by wild manic depressive mood swings of the market . 

Last time , when markets were falling  and being very volatile (a month back in early March) , I had take a contrarian stand and said that Indian equity market is bottoming out and will show a positive trend then onwards . Nifty 50 did show a positive trend after the blog & went up from 22000 levels to about 23500 (7% increase in a month )till recently , when the Trump mania hit us with his so called  “Reciprocal tariffs”.  Nobody ( even the best investors and investment banks) could predict the amount of drama and damage his unpredictable and un-reasonable Tariff related policies (“reciprocal tariffs) could un-lease in a short time of less than a week . Even Covid has not seen such wealth destruction in such a short duration(few days).

 

Will quote Warren again who famously said “ Be fearful when others are greedy & be greedy when others are fearful” .  I guess , its time to be greedy in a selective and disciplined manner . will again take a similar stand that markets is bottoming out & we should start investing in high quality and high growth large cap(blue chip) Indian stocks/ business , which are available at lucrative prices (due to recent correction) in a staggered manner over next 1-2 months, now onwards. This year is going to be the stock picker year and hence go for high quality & high growth businesses with strong moats/ competive advantages , run by quality managements, available at attractive prices/valuations (because of the recent correction) . I would recommend restricting ourselves to large caps, mainly cause of valuation related reasons. With the Nifty 50 dipping by 14-15% from recent peak  , most of these attractive and quality businesses would be available at great  prices. 

 

Following are the reasons for my optimism(10 commandments/ reasons)

·        Tarriff / trade war related fears have been already discounted in the prices – Markets have fallen in double digits in last week (11-12 % in US and Europe, 13-15% in Asia pacific- Japan, Hongkong etc) . Nifty was the only market which fell in single digits, by about 5%. All the tariffs announcements as well as retaliatory announcements (from China etc) have come in and have been factored in the prices . Hence forward , only good news in terms of Trump backing down ( seeing the fierce opposition, global criticism & market mayhem) and negotiations starting between the key players( US , China , Canada , Europe etc). India has already started  the same with US through its BTA(Bilateral Treaty Agreement).

·        US & global recession fears are overblown – The fears on US recession is overblown and discounted in the prices  to some extent in the big market fall last week . US economy , just like Indian economy is very resilient and proved similar rumours of impending recession wrong in last couple of years . Secondly , Trump tactics is more of  a bullying drama to bring the stakeholders to table with a first  mover advantage . He & all the global leaders know that tariff war is a zero sum game &  lose situation for all . Soon people will be negotiating and striking trade deals , defusing the trade war and recession potential

·        India relatively on stronger wicket on Tariff war -  India is a very much domestically focussed economy (Exports at about 600 Bill $ is just 15% of its GDP ) while its 20% for China and higher for many other emerging economies and other countries. Out of that , Indian exports to US is just 90 Bil $(about 2% of India GDP) . So the potential negative impact on India GDP could  be only about 0.2 %( assuming that exports to US will reduce by 10%). That’s one of the reasons why Nifty went down by single digits only last week , when others fell by double digits including US markets . Besides , some of the sectors will gain like electronics , textile , footwear etc , as competition like China , Taiwan, Thailand, Indonesia etc have been slapped with higher tariffs . In fact some of the IT hardware and electronic / smart phone manufacturers  from China , Taiwan have sent feelers to shift their production to India to avail the lower tariffs in India .

·        Improving Geopolitical situation - The Geopolitical situation is improving with 2 wars (Israel - Hamas and Russia - Ukraine) at its final stages under new administration in US . Ukraine has already accepted the US proposal for an initial 30 days ceasefire , while Putin is expected to accept the same in few weeks.  Israel - Hamas were already under the first ceasefire for 2 months , when Israel broke the ceasefire by attacking Gaza in Mid-March. This week US & Israel leaders are discussing renewal of the truce at White house because of global pressure. Ending of these wars( though under uncomfortable cease fires & deals) will bring in lots of goodness to global economies as well as markets with uncertainties coming down and oil prices coming down significantly.

·        Oll prices and inflation coming down for India – Oil prices have come down from 86$ per barrel to less than 65$(about 25%). This is going down due to better Geopolitical/ wars situation, US increasing its gas/ oil production to improve its reserves , OPEC increasing its Oil supply , slowdown in developed world like EU, US etc . This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices , reduced inflation , reduced RBI rates etc. This will also improve the real GDP growth rate(Nominal growth rate minus inflation)

·        RBI monetary has become accommodative & dovish – RBI has started its rate reduction cycle already last month and is expected to again reduce the repo rate by 0.25% in its next meeting this month . Besides , it has eased the tight liquidity situation through its OMO and Dollar-INR long term swap tools by 80 Bil $( about Rs 7 lac crore) since January and is planning to infuse additional Rs 2 lac crore($24 Bil ) more by Mid year . This is and will drive the markets up. The lower inflation projections because of lower oil prices and better monsoon(last year) will help RBI to reduce the repo rates lower which will boost the credit cycle as well as stock markets up as cost of capital will come down .

·        Indian Market fairly valued or undervalued – Indian markets are fairly valued or bit undervalued because of recent correction .

 While some  pockets of Indian markets , especially small caps and mid caps are clearly over-valued , large caps(Nifty 50 companies) are under-valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet Valuation Golden indicator(market capilaization / GDP ratio)      

1.      As per PE trailing ratios , Indian market(Nifty 50 – large caps) is sitting at 20.1  .  Last 5 years PE average was 23.9 .  Hence we are sitting   at a discount of 16% with respect to long term averages 

2.      As per PE 1 year Forward ratios , Indian markets are at 17.5 . Last 5 years PE average is 20.8  . Hence we are sitting at a discount of 15-16% 

3.      As per market cap / GDP ratio (Warren Buffet indicator)as per reliable data sources ,  the Indian market cap/ GDP ratio is 110%(As per Gurufocus.com).  As per this , Indian markets are fairly valued(90% to 111%) .

This shows that while Nifty 50( large cap companies) are under- valued , mid-cap and small cap are overly valued , making the aggregate valuation of the market fairly valued

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months, due to various reasons like Trump tariffs , Geopolitical situation/ wars , attractive 10  years treasury rates etc has started coming down. Its at 103 now. INR was going down due to above reasons and FIIs selling off in India to move their money to safer heavens in US . This has reversed now . In fact , INR has upvalued by 2% in last month ( from 87.6 to 86  per USD). In fact , its in the interest of US to keep USD down so that their exports don’t get negatively impacted.  These trends will be positive for India as strong and stable INR is good for FII returns and make Indian equity more attractive.
• Incorrect narratives on Indian economy slowdown -  There has been a lot of narratives ( seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called experts & media who influence the investing community through their narratives ignore the fact that this slow down for few quarters this fiscal year was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures which in turn had negative impact on private capex and earnings growth too. Businesses ( especially export oriented) also got impacted because of geopolitical tensions and developed economies slow down(EU , US , Japan etc). However, these are things of the past (especially election related slow down) . The GDP growth should show up good numbers (7-8%) Q1 of FY26 onwards (April onwards) because of favourable base effect (Q1 & Q2 of FY25 having elections related slow down) as well as lower inflation projections (cause of lower oil prices)
• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don’t have too many choices . 

           Globally , India is still the fastest growing economy with expected GDP growth rates  , returning back to >7 % . With inflation of about 4.5%, this could mean a nominal growth rate of about 12% or more (nominal GDP is Real GDP plus inflation). India is the 5th largest economy today , contributing to about 4% of world economy . Its going to beat Japan this year(2025) and Germany by 2027( as per IMF calculations) to become the 3rd largest economy . China , the second largest economy grew at 2.8 % & US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate . Can somebody afford to ignore this size of economy growing at the fastest speed ( Size and speed matters). In fact , FIIs have started returning back to Indian markets with vengeance last month(March) and pumped more than 31000 crore in last 6 days in March, before Trump mania hit the world .

 

 Key Recommendations & growth/return  projections : When it comes to NIFTY 50 targets , one should never venture into target predictions cause of market volatility and unpredictable nature in short & medium term .  However , historically NIFTY 50 & sensex  has given about 14% CAGR returns(15% plus including dividends). As the market is fairly valued (as per Warren indicator) or undervalued ( as per PE trailing and forward ratios)now cause of panic and doom sentiments , I would like to shoot for 20% or more upside for NIFTY 50 in next 12 months from current levels(by end of FY26). More attractive sectors  as per my analysis ( considering growth projections , current valuation , domestic market focus in this slowing global economy) are large cap & strong  businesses in  BFSI(Banking , Fin services & Insurance), Auto , Infra , capital goods, power , defence ,  Pharma/ healthcare, Telecom , Real estate , Chemicals & Travel/Hospitality sectors .  In long and medium term , there is no reason why NIFTY 50 won’t continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more (Alpha)  & double your investments every 4 years, which is quite decent by any standards. This is equivalent to 16 times in 16 years by magic of compounding (We underestimate the magic of compounding which can be achieved only through long term investing)  . If you don’t want to take the risk of picking up the right businesses / stocks , you could invest through index funds too(low cost and safe method of investing) . Last but not the least , in these times of big volatility , pl remember that your temperament/ calmness  & patience is more important than intellect and knowledge. I would also advice you to invest in Gold ETF funds(electronic gold) for 10-15% of your portfolio value  as its the best insurance against black swan events / wars and uncertainties like Trump mania . It will help you to cope up in extreme volatile situations as well as sudden liquidity requirements without selling equity at low prices . And avoid leverage for equity investing always 

 

 

 

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