This is the time to be bullish on Indian equities

The last 18-24 months have been the toughest for Indian markets since Covid.

• US Tariffs
• INR weakening
• FII selling like never before
• Worst performing emerging market
• US-Iran war & impact on Crude & inflation

As a result, Indian equity markets have become untouchable. Investors looked for alternatives across international funds (US, Taiwan, Korea, etc). The inflow was so big that the AMCs had to stop new flow into the fund, adhering to the RBI rules. For the ETFs, the premiums stayed above 15% for the longest time, showing the demand. The platforms that help investors to invest in international markets have seen a huge demand surge over the last 6-12 months.

But as we speak, many of these factors have begun to improve either by internal efforts (FCNR & RBI intervention), external factors (US-Iran peace deal), natural exhaustion (valuation reset) or just by fatigue (AI trade reversal).

Not just the sentiment, but things on the ground are improving. The Q4FY26 results show that the earnings recovery is broad-based. NSE 500 had seen a median revenue growth of 12.5% YoY, median PAT growth of 16.7% YoY. An eight-quarter high. Things are much better if we check Midcap 150 (median PAT growth 18.5% YoY) & Smallcaps (16.3% YoY). The business updates & commentary for Q1FY27 are equally encouraging.

• The bank credit growth came at a 13-year high of 17%.
• Crude back to $ 70-odd levels.
• Rupee stabilising at 95ish.
• Valuations reasonable, as earnings caught up over the last eight quarters.
• The uncertainty over US Tariffs is over.
• US-Iran peace deal is in place.

So, if you combine all these data points & take a holistic picture, the pessimism on Indian markets is slowly easing out & more importantly, this is happening on the back of strong earnings recovery. So we believe this is the time to be bullish on Indian markets. Be in the markets, in one way or the other. We expect things to surprise us on the upside over the next 18-24 months.

Coming to the individual strategies

Surge India:

In June, Surge was up 2.75% as compared to our primary benchmark Nifty 50 TRI at 1.67% & our secondary benchmark Nifty 500 Multicap 50:25:25 TRI at 2.1%.

Let's discuss our top 3 sectoral allocations, which together make up over 50% of your portfolio.

Autos & Auto ancillaries (24.6%):

• The auto OEMs continue to deliver. The June numbers are well above expectations. The 4W have delivered anywhere in the range of 20% to ~70% YoY growth. The 2W also had a stupendous growth with all the major players delivering anywhere between mid 25% to 47%. Ather Energy has hit out of the park with 114% YoY growth and continues to be our highest allocation in your portfolio.
• Even the tractor growth is good with Escorts at 19% & M&M at 12% YoY growth. Three months back, when the prices of petrol and diesel were increasing for the end users, and also raw material costs like steel & aluminium were increasing for the manufacturers, who would have expected these kinds of numbers?
• While Auto OEMs continue to show growth momentum, the relatively better growth is in auto ancillary players serving them. We continue to like & hold Belrise, Sansera, LumaxTech, Sandhar, SJS, Garware Hitech.

Capital Markets (15.4%):

• Capital markets have been our core theme for over 4 years, and we continue to hold market leaders like Anand Rathi Wealth, MCX, BSE & ICICI AMC. Anand Rathi had already released its Q1 numbers and was in line with our expectation of 18% topline growth & 24% bottom line growth YoY.
• On the other hand, MCX & BSE are facing a near-term challenge on the back of reduced volumes due to the RBI's new bank guarantee rules. The framework barred banks from funding proprietary trading desks of brokers and introduced a requirement for 100% collateral against exposures. The changes tightened liquidity in the system, forcing algorithmic and high-frequency traders to reduce leverage, which in turn weighed on derivatives trading volumes. This, however, we believe is a temporary phenomenon. We may reduce the allocation if needed, but as a whole, we continue to be bullish on this particular theme going forward, especially when we believe we are at the cusp of another bull cycle.

Pharma (11.2%):

• We started adding Pharma to your portfolio over the last couple of months. We believe growth in the pharma sector is coming back after a long consolidation of 2 years, especially in the likes of CDMO & API players. The CDMO cycle is turning as global biopharma funding recovers, fresh peptide and sterile injectable capacity comes online through late CY26, and Indian players are well positioned on GLP-1 and peptides, arguably the largest outsourcing opportunity global pharma has seen in a decade.
• Underneath, domestic formulations keep compounding at double digits, and the China+1 shift in APIs is translating into contract wins. US generics are normalising as exclusivity profits roll off, but that's exactly what makes the setup interesting. The market is looking past the near-term dip to the capex now hitting the ground.
• We continue to like & hold Laurus, Granules, Torrent Pharma, Cohance (CDMO + a turnaround story).

Our idea is to find sectors where earnings are picking up before the market notices, back the emerging winners in that space, stay with them as long as they keep delivering, and move on when they don't.

Adaptive Momentum:

Momentum is up 1.39% in the month of June as compared to our benchmark at Nifty 50 TRI at 1.67%.

Over the last couple of months, we have been seeing Momentum as a factor slowly coming back. As we speak, Momentum is outperforming the benchmarks on 1M, 3M, 6M & 1Y. However, it is still struggling on a 2Y basis, as the strategy peaked in July of 2024. The changes we made to the strategy seem to be working for now (of course, a large part of it is because of the broad-based rally we are seeing in the markets right now).

Sitting tight when a strategy is underperforming is the hardest thing to do in investing, and you did it. That patience is now beginning to pay off, and honestly, the returns from here mean a lot more because of what it took to get here.

We are not going to pretend momentum will now be a smooth ride, no factor ever is, and anyone who tells you otherwise is selling something. What we can tell you is that the specific reasons the last two years hurt so much have been diagnosed and worked on. The early signs are pointing in the right direction, and we intend to build on this carefully rather than get carried away by a good quarter or two.

Mutual Fund Strategies

Mutual Fund strategies, especially All Weather Equity & Altitude, continue to do well. They are beating their respective benchmarks since inception. No complaints on that front. These continue to be one of the best strategies for someone who doesn't want to have direct stock allocation, yet wants to have equity allocation across large, mid & small caps.

We will have a planned rebalance this month (as per their rebalance schedule). We will discuss more about the changes in our next FM note.

Anchor is only 3 months old & is doing stable for now.

This is the time

A few months back (around Jan to Mar 2025), we mentioned that we were in Rahul Dravid mode. Sticking to the crease, playing tight & protecting the wicket. Now, as we speak, the tables have turned. We are in Sehwag mode. Playing front foot. Going aggressive as & when there is an opportunity.

We have kick-started Q2 on a good note. The business updates (from both portfolio companies & non-portfolio companies) are very encouraging.

As mentioned above, every negative thing that happened over the last 12 months is discounted. Earnings are coming back. Valuations are comfortable. There is clearly no euphoria yet in the market. Hence, I say, this is the time to be bullish on Indian Equities.

Fully invested & ready for the next market cycle,

Krishna Appala

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