Synopsis

The December 2025 newsletter reflects on the last 18 months of Indian equity markets, reaffirming SAIMPL’s consistently cautious and valuation-disciplined stance. While India’s economic growth remains broadly intact, market outcomes have been constrained by valuation excesses, uneven earnings recovery, global cost of capital, and sectoral divergences.

Market & Economic Assessment
Despite fiscal stimulus, GST cuts, and monetary easing, growth recovery has been uneven and two-paced, particularly in consumption. Private capex remains patchy, with continued reliance on public capex. Equity markets have delivered muted returns, masking significant internal damage—most stocks remain well below their highs, highlighting narrow market leadership and heightened downside risks.

Sector & Stock Trends
Financials have relatively outperformed due to regulatory support, while consumer stocks, IT services, FMCG, and real estate have struggled amid weak demand and margin pressures. Market performance has been driven by a limited set of “approved” stocks supported by institutional flows, even as valuation risks continue to build beneath the surface.

Global & Macro Risks
Global factors—USD strength, trade dynamics, and capital flows—have significantly impacted Indian equities, which underperformed global peers in USD terms. Persistent FPI selling, INR depreciation, and IPO-driven capital outflows pose macro and policy challenges heading into 2026.

Key Takeaways for 2026

Expect modest, low double-digit equity returns amid mean reversion and earnings constraints. Investor complacency remains elevated, with volatility indicators at historic lows. Macro signals are mixed: benign inflation and easing rates contrast with currency weakness and capital outflows. A cautious stance does not imply a bearish outlook; selective opportunities for alpha are likely during periods of volatility.