A SLOWING ECONOMY, STRETCHED VALUATIONS AND THE CASE FOR LARGE-CAPS

India’s domestic equity investors face a problem they haven't experienced in a long time: two consecutive years without meaningful equity returns.

- SHYAM SEKHAR

The challenge is more complex given the average age of today’s market participants. Most belong to the post-covid generation and have never experienced a prolonged bear market. They entered after the covid crash and have largely witnessed a bull run.

Their expectations are not necessarily built around investing patiently for years and waiting for returns to emerge. Instead, they are conditioned to seeing every market dip quickly bought into, with markets subsequently moving higher. This time, however, appears different.

India is diverging significantly from global markets even as our macroeconomic environment has deteriorated rapidly within less than a quarter. Oil prices are higher than what our economy can comfortably sustain, FDI flows have turned net negative, and global investors are exiting India in a hurry. Clearly, we are in a difficult position, with little visibility on how long it may take for the economy to regain momentum. Markets are being sold aggressively by global investors even as domestic investors continue to pour money in, anticipating a quick recovery.