Earlier this month, we hosted Decipher with Dezerv in Hyderabad — our flagship investor conference, now in its newest city. The format is simple: bring together some of India’s sharpest investment minds and let them talk candidly about what they’re seeing.
This time, we had four voices I deeply respect:
- Neelkanth Mishra, Chief Economist at Axis Bank
- Aashish Somaiyaa, Executive Director & CEO at WhiteOak Capital Management
- Harsh Upadhyaya, CIO (Equity) at Kotak Mahindra AMC
- Sreekanth Nadella, CEO at KFin Technologies
What struck me wasn’t the headlines they discussed — tariffs, FII outflows, valuations — but how differently they framed the questions. The conversation kept returning to a central theme: the next five years will reward patience more than prediction.
In today’s edition, I’ve distilled the most important insights from that discussion. Think of this as your investing field guide for the journey to 2030.
In this edition, we’ll cover:
- How Indian investor behaviour has fundamentally changed
- Earnings, valuations, and flows: separating signal from noise
- Where the market stands today — and what 2026 might look like
- Sector-level views: where capital is likely to flow
- How to think about IPOs in this environment
Let’s begin.
India’s Savings Revolution: The Quiet Shift That Changed Everything
If you strip away the noise of daily market moves, one thing becomes clear: the most important change in Indian markets over the last few years has not been returns, products, or even technology.
It has been behaviour.
For decades, Indian households were savers. They quietly built nearly $12 trillion in financial savings, but very little of that money entered equity markets. Instead, it went into bank deposits, gold, real estate, and insurance. Equity investing was episodic and emotional. When markets rose, money came in. When markets fell, money went out.
That pattern has now decisively changed.
Over the last 15–18 months, Indian equity markets have largely moved sideways. During this period, foreign investors sold Indian equities. Headlines were dominated by volatility, geopolitics, and uncertainty. And yet, domestic investors stayed invested.
Even during Covid, when markets fell nearly 50% at the worst point, the industry did not see panic-led exits. Within months, markets recovered — and so did investor participation.
Here’s what I find remarkable: a growing number of investors no longer see mutual funds as something to buy and sell based on market levels. They see them as long-term investments, accessed through SIPs. Many investors today don’t say they invest in mutual funds; they say they “do SIPs.”
That shift in vocabulary matters. SIPs have become India’s version of a retirement plan — automated, habitual, and emotionally easier to stick with.
The Runway Ahead
Despite this progress, India is still under-invested.
While the industry talks about nearly 18 crore folios, the number of active, unique investors is closer to 2.5 – 3 crore. Against a population of over 140 crore, mutual fund penetration is barely 2–3%.
This matters because it tells us that India’s investing journey is still at an early stage.
In most economies, once per capita income crosses roughly $3,000–3,500, households move beyond meeting basic needs and begin investing meaningfully. India is approaching that threshold. As disposable incomes rise, financial savings — already about $12 trillion — are expected to grow sharply.
Over the next 25 years, India is projected to add nearly $103 trillion in household financial wealth.
The complexity is growing faster than the wealth itself. In January 2020, there were 962 open-ended mutual fund schemes. By January 2026, that number had grown to 1,675. By 2030, at current growth rates (~11.5%), we could be looking at nearly 3,000 schemes!
More choices. More noise. More need for clarity.
What’s Actually Happening in the Markets?
If you only went by headlines over the last year, it would feel like the global economy is constantly on the brink. Tariffs, geopolitics, elections, wars, and policy uncertainty dominate the narrative. Yet when you step back and look at the numbers, the picture is far more stable.
Despite all the drama, global growth is still expected to be around 3.3% this year.
That stability matters because markets don’t move on headlines — they move on earnings. So the key question becomes: are earnings improving or not?
What happened in 2025
Earnings growth in 2025 was weak and uneven. For the last 2–3 years, companies kept lowering their profit estimates, which meant business conditions were getting worse or staying flat.
The upgrade-to-downgrade ratio — the share of companies seeing earnings estimates revised up versus down — stabilised near the bottom. It didn’t turn clearly positive. Valuations stayed on the higher side, keeping markets cautious.
What 2026 might look like
Earnings improvement is expected, but gradual — not sharp. Profit expectations are no longer being cut aggressively. This suggests earnings have stabilised. By 2027 onwards, earnings growth should return to healthier levels. Mid-teens growth (around 14%) is possible, but not immediately.
The key insight: 2026 returns will be earnings-led. If prices stay flat and profits grow, investors still make money. Time + earnings will matter more than timing.
Why Foreign Investors Have Been Selling
This is a question I hear constantly. FIIs don’t look at India in isolation — they compare it to the rest of the world.
What happened in 2025
Foreign investors sold roughly $18–19 billion of Indian equities. That sounds large, but India’s stock market is nearly $5 trillion in size. In that context, the selling is modest.
Several factors drove this:
India became expensive. By late 2024, Indian stocks were trading at record valuations. At the same time, earnings growth was slowing.
Other emerging markets looked cheaper. China, Korea, and Taiwan were trading at much lower valuations.
The AI trade shaped global flows. Investors shifted money to the US (AI, tech) and other markets where companies directly benefited from AI. Taiwan and Korea gained as key suppliers in the AI value chain.
Global EM baskets saw redemptions. Most foreign money comes through global funds that invest in many emerging markets at once. When money is pulled out of emerging markets because of events elsewhere — China’s slowdown, US rate hikes, geopolitical risk — India is sold automatically along with the rest.
Will foreign investors come back in 2026?
No one knows when. FII ownership is already very low — they now own just 15% of Indian equities, near multi-year lows. So selling cannot continue forever. But there’s no short-term trigger to predict timing.
The valuation gap has narrowed. India is still expensive, but now closer to its 10-year average premium. As valuations normalise and earnings recover, flows should gradually come back.
The critical point: domestic flows have more than offset foreign selling. In 18 consecutive quarters, DIIs have been net buyers. When global uncertainty triggers foreign outflows, Indian markets don’t collapse anymore. Domestic investors absorb the shock.
Making Sense of Valuations
When people say “the market is expensive,” they usually look only at the index. That can be misleading.
The index has been flat for over a year, but many individual stocks have not. Several mid and small-cap stocks have already corrected 30–50%. In many cases, the valuation correction has already happened in price, even if the index doesn’t show it.
How to think about this in 2026
Large caps offer lower valuation risk. Large companies are priced close to their usual levels — not cheap, but not overpriced either.
Mid caps present stock-specific opportunities. Earnings growth is expected to be slightly better than large caps. Focus on companies with real earnings delivery.
Small caps remain the highest risk area. Earnings have disappointed recently, and valuations are still 40–45% above long-term averages. This is where valuation risk remains highest.
The key point: averages are no longer useful. A few large stocks distort index-level valuations. Looking sector by sector or company by company often reveals that many businesses are already priced for modest expectations. Stock selection will matter more than sector bets.
Where Capital is Likely to Flow
Banking & Financials — Constructive
Bank valuations are reasonable compared to the broader market. The profit pressure from rate cuts is mostly over. Further large rate cuts are unlikely, which stabilises margins. Bad loans are under control, and credit growth is expected to improve gradually.
NBFCs have already performed better than banks over the last 6–8 months. Some are now expensive, but overall tailwinds remain supportive — select NBFCs can still do well.
Capital Goods — Selective
This sector has already done very well over the last 4–5 years. Valuations have corrected somewhat, and growth rates have also slowed for many companies.
Returns will now depend on specific companies, not the sector as a whole.
Discretionary Consumption — Positive
Spending beyond basic necessities should pick up. Support is coming from multiple directions: income tax relief for certain taxpayers, state-level welfare schemes, GST restructuring, and potential implementation of the 8th Pay Commission over the next 1–2 years.
This should benefit areas linked to aspirational demand — autos, consumer durables, travel, aviation, and leisure.
IT Services — Cautious
The outlook here is weak. Earnings growth is slow, below both its own history and the market average. Valuations aren’t cheap enough to compensate.
IT services will likely be held for stability, cash richness, and lower volatility — not for returns.
Real Estate — Structural, with cycle awareness
Here’s a striking data point that Neelkanth shared: the average Indian lives in roughly 130 square feet of built space. Compare that to over 500 square feet in China’s smaller cities and nearly 700 square feet in the US.
As per capita incomes rise, people don’t eat much more food — but they do want more space. Demand for bigger homes, better offices, and better infrastructure naturally follows.
The confirmation is in the cement data: volumes are growing at 8–9%, and prices are rising despite supply increases. Cement can’t be stored — which means real construction is happening.
How to Think About IPOs
IPOs do take money out of the market temporarily, but they’re also a normal part of capital rotation. Early investors exit; new investors enter.
For many Indian investors, IPOs still carry baggage from the 1990s. Back then, going public often meant funding ideas that were still experimental. Business models were untested, governance was weak, and retail investors were effectively absorbing early-stage risk without real protection.
That is no longer how IPOs work.
Today, early risk is largely borne by venture capital and private equity. By the time a company lists, it usually has an established business, customers, and a track record. This is why most IPOs since 2018 have come from mature sectors — financial services, hospitals, manufacturing, specialty chemicals, retail, and infrastructure.
The takeaway is simple: IPOs are neither good nor bad by default. They should be evaluated like any other stock — on business quality, price, and earnings potential.
In Summary
India’s next phase will be driven by investment-led growth. Capital is cheaper, companies are financially stronger, and the conditions for long-term compounding are better than they have been in decades.
The strategy is simple: think in five-year blocks, let earnings compound, and ignore short-term noise.
Here’s what the panel views suggest for different market segments:
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