PPFAS Flexi Cap Fund: When Cash Speaks Louder Than Stocks

 

Why should I now buy an Index or large-cap fund?  Why should I keep my holdings when the average cost of stocks and portfolio is higher now compared to the market? When a financial advisor has already done the asset allocation, why are additional cash holdings in the portfolio invested?

In a bull market, cash is often an unpopular asset. Fund managers are expected to “put money to work,” riding momentum, capturing upside, and staying fully invested to avoid underperformance. This is not just a passive outcome of unutilized inflows. It is a deliberate positioning — a signal of what the fund sees (or doesn’t see) in current market valuations. In a market environment where large caps have rebounded, midcaps are flirting with exuberance, and global uncertainties continue to lurk, such a high cash allocation demands closer scrutiny.

In the realm of equity investing, cash is often seen as the antithesis of conviction. Yet, in the case of the PPFAS Flexi Cap Fund’s June 2025 portfolio, where cash stands tall at 21.85%, it becomes a powerful strategic signal, not a passive residual.

Cash: The Signal, Not the Residue

PPFAS has long been a fund house known for its contrarian temperament and patient capital deployment. Historically, high cash levels in its portfolio have reflected either an absence of value opportunities or an anticipation of better future entry points. But a near-22% cash holding in a flexicap portfolio — in a market where Nifty is near all-time highs and midcaps are frothy — raises a few fundamental questions: Is the fund underinvested? Is it too cautious? Or is this a reflection of deeper market discomfort?

The answer lies somewhere in between.

Opportunity Cost vs. Margin of Safety

In a rising market, sitting on cash can be a double-edged sword. While it preserves capital and provides dry powder for corrections, it also drags down performance relative to fully invested peers. However, PPFAS seems unperturbed by this relative lag. It underscores its philosophical commitment to buying only when there is a margin of safety.

From a portfolio standpoint, this large cash pile is not inertia — it's intentional. The fund appears to be taking a valuation-led pause, ensuring that capital is only deployed where risk-reward is meaningfully skewed in its favor. The marginal additions in Airtel, large-cap banks, defensives like ITC, and yield plays like REITs suggest a slow re-entry, but without chasing momentum.

Interestingly, the current portfolio structure now resembles that of an aggressive hybrid fund — large cap heavy, with strong dividend payers, modest overseas exposure, and a rising yield bias. The high cash only amplifies this hybrid nature, functioning as a volatility buffer and optionality creator.

This might actually suit conservative investors looking for downside protection in overheated markets. Yet, it raises concerns for performance-chasing investors who expect alpha through active sectoral rotation or thematic bets.

A contrarian investor might applaud this prudence — after all, capital preserved is capital available for better times. But sceptics would argue that in a world flush with liquidity and compounding opportunities, excessive cash may result in return erosion via opportunity cost, especially if markets continue to melt up without meaningful corrections.

That said, PPFAS has built its reputation by refusing to compromise on quality and valuation, even if it means temporarily lagging in bull markets. The fund’s actions suggest that while it sees green shoots in select names (Airtel, M&M, IT), it is not yet convinced of a broader market re-rating.

Conclusion: A High Cash Call — Conservative or Calculated?

The 21.85% cash holding is both a defensive moat and a strategic bet. It reflects caution in an overvalued market and confidence in waiting for the right price. While this posture may test the patience of investors in the short run, it aligns with PPFAS’s long-held philosophy: “Don’t just do something, stand there” — until value emerges.

Ultimately, this is not indecision. It is intentional. And time will tell whether this cash-heavy stance turns out to be wisdom or wasted potential.

Read More

The Harsh Reality of F&O Trading: SEBI Data Exposes the Retail Trap

Covid have been a curse as well as a boon for many people. A boon for those who invested and explored the market and made short-term gains before getting the same diluted.

Financial advisors are often forgotten when there is a bull market, and the market rises on one side. This leads to a trap for investors getting into the wrong hands of wealth destruction rather than wealth creation.  You blame SEBI for its risk measurement process, but one will never accept the mistake of avoiding a financial advisor.  The pride in wealth creation by own is a delusion. Retail investors' share in F&O trading volumes skyrocketed from 2% in 2018 to 41% in 2024, reflecting a dramatic increase in participation. By FY24, retail investors accounted for 35–41% of total derivatives trading volumes. The number of unique individual traders in F&O grew from 8 lakh in FY19 to 45 lakh in FY23, a nearly sixfold increase.  By April 2024, India had 154 million trading accounts, a fourfold jump from 36 million in April 2019, with a significant portion active in F&O. Active retail investors in index F&O (e.g., Nifty, Bank Nifty) rose from 5.1 million in FY22 to 7.2 million in April–November FY24, a 7.5% increase year-on-year.

 The maturity of the investors from these data makes every Indian proud but the loss also makes us realise the price of ignoring financial advisor.Despite regulatory interventions, F&O trading continues to be a high-risk, high-loss zone for individual investors.

According to the latest SEBI study, a staggering 91% of individual traders incurred net losses in the Futures & Options (F&O) segment during FY25, with total retail losses crossing ₹1.06 lakh crore — a 41% increase from FY24.

This data, compiled from 13 major brokerage firms covering over 96 lakh unique traders, paints a grim picture of retail participation in India’s derivatives market. Despite tighter regulations and increased awareness campaigns, the F&O boom continues to trap retail investors into speculative, loss-making behaviour.

Now let's come to find out who is avoiding the financial advisors?

1.      Young investors (under 30) increased from 29% of all investors in FY19 to 48% in FY23, with 43% of F&O traders in FY24 below 30.

2.      Most retail F&O traders belong to low-income groups, earning less than ₹5 lakh annually.

3.      Over 60% of new trading accounts on platforms like Zerodha come from small towns, with an average user age of 29.

4.      The average holding time for options is 30 minutes, indicating pure speculation rather than hedging or arbitrage.

5.      Cases of young traders incurring massive losses (e.g., a student losing ₹46 lakh crore with borrowed funds) highlight gambling-like behaviour.

Hence, this is the age bracket who don’t want to consult financial advisors. Now you know why mutual investments are dated and do not excite investors.  But the truth is that maturing in terms of ease of doing transactions does not mean maturity for investors to invest and choose quality products. The underlying risk of loss is often forgotten in short-term gains. A financial advisor's guidance is highly required where volatility is high and the predictability of returns from investment assets is fragile.

1. The Numbers: An Escalating Loss Spiral

• Total net losses (FY25): ₹1.06 lakh crore
• Average loss per trader: ₹1.1 lakh
• Losses in FY24: ₹74,812 crore
• Retail participation (unique traders): 96 lakh across the year
• Active traders Q1 FY25: 61.4 lakh
• Active traders Q4 FY25: 42.7 lakh (down 20%)

The loss rate, while marginally better in Q4 FY25 (average losses down 8%, aggregate losses down 26%), still reflects a systemically unfavourable structure for individuals.

Retail vs Institutional: A Rigged Playing Field?

One of the starkest revelations from SEBI’s research is the profit distribution between retail and institutional players:

• 91% of individuals lost money
• Institutions (FPIs and proprietary desks) made the majority of the profits
• In FY24, algorithmic trading strategies accounted for:
• 97% of FPI trading profits
• 96% of prop desk profits

This suggests that retail traders are consistently on the losing end of trades executed by AI-driven, algorithmic, or latency-sensitive strategies. These strategies exploit micro-price inefficiencies, order flow prediction, and real-time hedging techniques that are unavailable to the average retail participant.

India’s derivatives market now contributes over 80% of NSE’s total turnover, yet its role in real economic hedging or capital formation is debatable. For comparison:

• U.S. index options turnover is 25–30% of equities turnover
• India's index options turnover is ~4x the next largest market (as per WFE)

What was designed to be a risk management tool is now functioning more like a speculative casino, especially with zero-day expiry options, short-term P&L chasing, and YouTube-driven trading narratives influencing lakhs of young traders.

The explosion in F&O participation has created the illusion of financial empowerment for retail investors, while masking the systemic wealth transfer to institutions. SEBI’s data confirms what many feared: the F&O market has become an engine of loss for most individuals.

Read More

Why avoid the IT sector despite huge returns?

 As of July 7, 2025, the Nifty IT Index has a YTD return of -10.17%, indicating a decline in value since the start of the year. This underperformance is attributed to concerns over AI disruption and economic uncertainties in key markets like the U.S. Is the IT sector under turbulence, and should one avoid the sector for investments?  

The Nifty IT Index has faced a tough 2025, with a YTD decline of -10.17% as of July 7, 2025, driven by AI disruption, FII selloffs, and U.S. economic uncertainties. However, recent gains (e.g., 19.17% over three months) and optimism around Q1 earnings and trade deals suggest potential for recovery.

Where is the issue in the sector?

Advancements in artificial intelligence (AI) and automation are reducing the need for human labour in certain IT roles, particularly in repetitive or low-skill tasks such as basic coding, testing, and IT support.  Roles like entry-level software development or IT operations may face reduced demand, potentially leading to job cuts or stagnant wages in these areas. This could make the sector less appealing for new entrants or those in traditional IT roles. AI and automation are also creating new opportunities in specialised areas, such as AI/ML development, data science, and AI ethics.

The rise of AI and automation (e.g., tools like ChatGPT, Gemini, and Copilot) is reducing demand for traditional IT services like basic coding and testing, potentially affecting order volumes in these areas. A Harvard Business Review study suggests up to 30% of jobs in coding could be impacted by AI by 2030.

Demand for these roles is projected to surge by 30-35% in 2025, particularly in India. The dynamics of the Industry are changing fast, and hence, the growth prospects of the Industry during this transition phase should be avoided.

The IT sector, particularly in services, is experiencing market saturation as more companies and countries (e.g., the Philippines, China, and Costa Rica) compete for outsourcing contracts. This reduces profitability for established players and creates pricing pressure. For businesses, this could mean lower margins and reduced growth potential, making IT services less attractive to investors. 

For employees, it may lead to wage suppression in certain segments. Macroeconomic challenges, such as potential U.S. policy changes (e.g., tariffs under a new administration) and global slowdowns, could reduce IT spending, particularly in discretionary projects. Reduced client spending could lead to fewer projects and layoffs, particularly in IT services. Investors may see IT stocks underperform, as noted with a 27-30% correction in major Indian IT companies like TCS and Infosys.

 Layoff Landscape: January–July 2025

Total Job Losses:

• At least 76,000 confirmed layoffs in tech by June 2025
• Estimated 100,000+ jobs lost globally, including non-tech roles
• Peak months: February (16,234 layoffs) and April (23,400 layoffs)

🏢 Major Company Layoffs:

• Intel: Up to 25,000 job cuts—almost 20% of the workforce—mainly in the Foundry division. Further layoffs in sales and marketing began in July.
• Microsoft: 9,100 jobs cut in July, primarily in Xbox and gaming. Combined with earlier cuts in May (6,000 roles), total layoffs affected 7% of its workforce.
• Amazon: Cut around 14,000 managerial roles globally. Additional roles were slashed in its Devices & Services, Alexa, and Books (Kindle, Goodreads) divisions.
• Meta: Eliminated 3,600 positions (5% of the workforce), targeting low performers in Facebook, Horizon VR, and logistics.
• Google: Cut around 200 jobs in global business teams. Layoffs extended to Android, Pixel, Chrome, HR, and Cloud, especially in roles replaced by AI.
• IBM: Let go of approximately 8,000 employees, primarily in HR, with AI systems automating many repetitive functions.

 🌍 Regional Impact

• United States: States like California, Arizona, and Oregon have seen the highest concentration of job losses.
• Germany: Intel’s closure of its automotive chip unit impacted hundreds of jobs.
• Canada: Several tech firms downsized amid weaker capital inflows and economic strain.

Despite widespread layoffs, hiring remains strong in future-focused domains. Roles in AI, machine learning, cybersecurity, and data analytics are in demand, with job growth projected at 15–20% in these areas for 2025.

In India, fresher hiring in the IT sector is expected to rise 30–35%, particularly in positions related to cloud infrastructure, AI engineering, data science, and blockchain. The negative YTD return reflects fears of AI replacing traditional IT roles. For investors or professionals, focusing on companies and roles in high-demand areas like AI, cybersecurity, and cloud computing can mitigate risks associated with any perceived order slowdowns

Read More

The Global Debt Maturity & Its Impact on Economic Growth.

 

Global debt levels need no introduction to the risk on the fiscal path of many developed economies.  Global public debt reached $102 trillion in 2024, with developing countries contributing $31 trillion, growing twice as fast as in developed economies since 2010. Total global debt (public and private) stood at 238% of global GDP in 2022, down slightly from its peak but still 9 percentage points above the pre-pandemic level.

The most dangerous part is that whenever there is an unwinding effort, a new tragedy strikes the world, and the debt levels go up again.  Pandemic and now the Trade war. The depth of impact is again isolated to country specifics, but the global debt is again going to witness QE in other forms.

In 2025, about one-third of countries, representing 80% of global GDP, have public debt higher than pre-COVID levels and rising faster. Advanced economies average a 110% debt-to-GDP ratio, while emerging and developing economies average 74%. Sudan leads with a 252% debt-to-GDP ratio.

You will not only feel the heat of this debt on interest payments but also on ratings, economic spending and most importantly, corporate debts. The chain of action is long and very much entangled.

 As global central banks approach the tail end of their post-pandemic balance sheet unwinding, attention is shifting toward the unintended consequences of quantitative tightening (QT)—particularly its impact on long-duration government bonds. The Bank of England (BoE), in recent statements, has subtly echoed growing concerns seen across the G4 economies about the fragile state of demand for ultra-long debt. Against the backdrop of a sharply steepening UK yield curve and persistent fiscal pressures, the BoE appears poised to reassess its QT strategy, signalling a broader rethinking of monetary tightening mechanics at a time of mounting debt and market sensitivity.

Despite these cuts, 30-year UK gilt yields remain elevated—15 basis points higher year-to-date and nearly 50 basis points higher at their April peak, the highest in 27 years. This has led to the widest gap between 2-year and 30-year gilts in nearly eight years, reflecting a sharp steepening in the curve and increasing borrowing costs for the government.

 Central Banks Face Long-Bond Resistance

The BoE’s concerns are not isolated. Central banks globally are becoming increasingly aware of investor fatigue for ultra-long debt:

• In the U.S., the Federal Reserve has nearly paused QT, maintaining only a symbolic runoff pace.
• In Japan, weak demand for super-long bonds has forced the BoJ and Finance Ministry to reconsider issuance plans and the central bank's role in supporting auctions.
• Shifting investor demographics and concerns about long-term inflation and sovereign debt sustainability are also playing a role in weakening demand for long bonds.

This comes at a time when governments face rising fiscal demands, from defence to healthcare, yet must operate under constrained borrowing capacity and rising debt-servicing costs.

S&P Global warns that sovereign defaults on foreign currency debt are likely to occur more frequently in the coming decade due to higher debt and borrowing costs.  40% of global sovereign and corporate debt in OECD countries and emerging markets (approximately $100 trillion in outstanding bonds) is set to mature by 2027, with a significant portion—potentially 10–15% annually—maturing in 2025 alone. Sovereign bond issuance in OECD countries is expected to reach $17 trillion in 2025, up from $14 trillion in 2023, with a portion of this reflecting maturing debt being refinanced.

 Now the question is who will buy and at what premium? The global stock of corporate bonds reached $35 trillion by end-2024, with 38% maturing by 2027, implying ~$4–5 trillion in corporate debt maturities in 2025 globally. 

BoE's Unique QT Approach

Unlike its global peers, the BoE adopts a dual approach to QT, combining passive roll-offs with active gilt sales—a strategy that could amplify yield curve volatility. Deputy Governor Dave Ramsden confirmed the bank’s heightened focus on long-end movements, though offered no specifics ahead of the QT review.

Analysts are already anticipating changes. A recent Bank of America report forecasts the BoE could slow its bond runoff to £60 billion in the upcoming fiscal year (from October), compared to £100 billion in the current year. This would include about £49 billion in maturing gilts, implying a significant pullback in active sales.

 

Impact

The BoE’s remarks reflect a broader recalibration among central banks as they confront the limits of market tolerance for long-dated government debt. The interaction between QT, fiscal policy, and market depth is becoming more intricate and may force monetary authorities to adjust their balance sheet strategies sooner than planned.

As QT slows and interest rates emerge as the primary monetary policy tool once again, central banks must walk a tightrope: maintaining credibility in fighting inflation, while not undermining bond market stability or crowding out private investment in long-term securities. High debt levels strain macroeconomic stability, especially in developing countries, where over 50 nations spend more than 10% of their revenues on debt servicing, diverting funds from health and education. Net interest payments in developing countries hit $921 billion in 2024, up 10% from 2023

Conclusion:

The BoE’s nuanced pivot underscores a broader realisation among central banks: the journey to monetary normalisation is no longer just about reducing balance sheets, but about managing the complex interplay between bond market functioning, fiscal sustainability, and macroeconomic stability. As investor appetite for long bonds wanes and structural uncertainties—from demographics to debt dynamics—cloud the outlook, policymakers may be forced to slow QT or recalibrate its composition. The era of balance sheet expansion may be over, but its legacy continues to shape the decisions central banks must make in a far more fragile and debt-laden world. 

Read More

Which Asset Class to Perform in the next 6 months?

Last 6 months, it's not the equity market that has delivered stupendous returns to the investor's portfolio. While many investors have celebrated the market rebound since April, a closer look reveals a more nuanced picture.  Reinvestment is a major matter of risk since opportunities are many, but rebalancing has become a late game in the financial planning path. The last 6 months of data reveal a complex interplay of asset performances, shaped by economic uncertainties and shifting investor sentiments, particularly in light of the U.S. consumer spending slowdown. What’s happening beneath the surface is a tale of rotation, rebalancing, and reallocation.

While many market participants have taken comfort in the apparent rebound since April, a deeper look at cross-asset performance reveals a far more dynamic—and telling—story about the direction of investor capital.

Despite widespread optimism, the S&P 500 has remained largely flat over the past eight months, hovering around the 6,000 mark in six of those. This lack of upward momentum in large-cap U.S. equities is striking when compared to the enthusiasm surrounding the recent market rally.  On the other hand, emerging markets, represented by indices like MSCI Emerging Markets, have achieved a 14% gain, indicating investor confidence in global growth.

We find that as the third quarter of 2025 begins, analyst sentiment on S&P 500 stocks remains broadly optimistic. Out of 12,319 ratings:

• 56.4% are Buy ratings (above the 5-year average of 55.1%)
• 38.7% are Hold ratings (below the 5-year average of 39.0%)
• 4.9% are Sell ratings (below the 5-year average of 5.9%)

 Sector Insights

• Most Optimistic Sectors:
• Energy (68%), Communication Services (64%), and Information Technology (64%)
• Most Pessimistic Sector:
• Consumer Staples — lowest Buy ratings (40%), highest Hold (53%) and joint-highest Sell ratings (7%)
• Utilities also shares the highest Sell rating at 7%

 

Metals Shine and the Biggest winner.

Gold and silver have seen significant appreciation, with reported gains of 26% and 19%, respectively. Historical price data from exchange-rates.org indicates that gold increased from $2,623.91 per ounce on January 1, 2025, to approximately $3,273.67 on June 27, 2025, a rise of about 24.76%, aligning closely with the 26% figure, possibly rounded or based on a slightly different period. Similarly, silver rose from $28.968 per ounce on January 1, 2025, to $35.97 on June 27, 2025, a 24.18% increase, close to the 19% mentioned, suggesting a possible variation in starting dates or rounding.

Currencies: Flight to Safety

The U.S. dollar has weakened by 9%, as evidenced by the U.S. Dollar Index (DXY) trends, possibly due to tariff uncertainties and a dovish Federal Reserve stance. Conversely, the Swiss Franc and Japanese Yen have strengthened by 11% and 9%, respectively, against the USD, as seen in currency exchange rate charts.

Bitcoin

The U.S. Bitcoin, with a 13% increase, suggests speculative interest in cryptocurrencies, potentially fueled by the same uncertainties pushing investors away from traditional equities

 Bonds

Long-term Treasuries, tracked via the iShares 20+ Year Treasury Bond ETF (TLT), have gained 1%, indicating cautious positioning in fixed-income assets, though the gain is muted, suggesting limited confidence in bond stability.

Conclusion:

The weakening U.S. dollar and strong performance of safe-haven assets suggest broader economic concerns, potentially exacerbated by trade tensions and inflation fears, as noted in recent analyses from S&P Dow Jones Indices. The contrast between the celebrated "rebound" and the S&P 500’s flat performance raises questions about market narratives. While Bitcoin, emerging markets, and precious metals signal optimism or hedging, the broader equity market’s lacklustre performance and the dollar’s decline point to underlying concerns about U.S. economic growth, particularly with consumer spending faltering and potential trade disruptions looming.  

We now need to see what we have stored in the next 6 months. We will witness weaker winter sales, higher prices, weak demand, more wars and more geopolitical tension, which will spook metal prices. Bonds will be rattled, and falling interest rates will reduce the demand for fixed-income products. We will witness equities shine in emerging economies, and a slowdown of the U.S will get attractive valuations for the S&P 500 to invest, but with a long-term mindset. Equities will deliver returns, but through volatility. Currency gains will add as a topping over the equity returns.

Read More

Indian Markets are Strong but are Investors Strong ?

Pahalgam Terror Attack, India-Pakistan War, Iran-Israel War, Trade War, Slowdown of the U.S. economy getting reflected- all these events were not able to bring down the markets as compared to what they did during September 2024 to March 2025. The market made a turnaround from the 2^nd week of March 2025. The interesting part is that we often get carried away, and our memories are short lived hence we forget how your portfolio of investments has gone through so many events. We attract eyes to negative performance but ignore the ones who fell the least and survived during these major events. Investors are not as strong as compared to the Indian markets. Panic redemptions, panic Debt investments, and stoppage of SIPs are all acts of investors' weakness. Despite so much financial education, the myopic vision of the investors cannot be ruled out. Indian investors are now having less patience compared in the previous decade. This is the perfect recipe for wealth destruction.

 In my recent interactions, I still find investors cautious and have a negative outlook on the mid-cap and small-cap space. Many investors are busy comparing the returns of the index with their Mutual fund portfolio or schemes. One of the biggest blunders of comparison where an active portfolio does not carry a mirror image of the index portfolio. We are lost in the world of returns and investments.

India’s equity markets have showcased remarkable strength through the first half of 2025, reflecting investor optimism, robust liquidity, and economic momentum. Market participation has been broad-based, spanning across large-cap, mid-cap, small-cap, and micro-cap segments. A closer look at the performance and valuation data of key indices from March 1, 2025, to the present reveals important insights for investors as they plan their strategies for the rest of the year.

The market's recovery has been bolstered by strong domestic institutional and retail investor participation. Despite foreign portfolio investor (FPI) outflows of $11 billion in October 2024, the Nifty 50 only corrected by 6.2%, supported by domestic investors. Retail participation has surged, with investor accounts growing from 4.9 crore in FY20 to 13.2 crore by December 2024, and net investments of ₹4.4 lakh crore in the NSE cash segment from 2020-2024.

Systematic Investment Plan (SIP) inflows hit a record ₹253.2 billion, up 49.6% year-on-year, cushioning the market against FPI selling.  Investor participation has been a contributor, with the number of investors growing from 4.9 crore in FY20 to 13.2 crore as of December 31, 2024.

Market Performance: A Strong Run for Smaller Segments

Leading the rally, the Nifty Small Cap 250 TRI posted an impressive 27.32% return since March 2025. Close behind were the Nifty Micro Cap 250 TRI, which surged 23.61%, and the Nifty Mid Cap 150 TRI, returning 22.54%. Even the broader Nifty 500 TRI delivered a robust 18.52%, while the Nifty 50 TRI, representing India’s largest companies, grew 15.88% over the same period.

Despite these strong gains, most indices remain marginally below their 52-week highs, with the correction from peak levels ranging from -2.49% to -10.10%. This indicates that while optimism persists, valuations and market psychology remain slightly tempered, suggesting a potential for continued growth if supported by earnings momentum and macroeconomic stability.

Valuation Dynamics: A Mixed Bag Across Market Caps

The current valuation picture reveals contrasting signals across segments. Using the price-to-earnings (P/E) ratio as a gauge, certain segments offer value, while others may be showing signs of overheating.

Among large caps, Nifty 50 TRI trades at a P/E of 23.00, which is 7.26% below its 5-year average and 5.66% below its 52-week high P/E. This suggests relative valuation comfort for long-term investors seeking stability and consistent returns.

Interestingly, the Nifty Mid Cap 150 TRI, with a P/E of 34.90, is trading at a 32.19% discount to its 5-year average P/E and a 23.80% discount from its peak P/E. Despite the higher absolute P/E, this historical undervaluation hints at promising opportunities for investors with a medium-term view.

On the other hand, Nifty Small Cap 250 TRI is trading at a P/E of 33.50, reflecting a 14.96% premium over its 5-year average and a 6.72% premium over its recent peak. This suggests a potentially overheated zone that demands caution and careful stock selection. Similarly, Nifty Micro Cap 250 TRI stands out for its volatility: although currently undervalued with a 26.39% discount to its 5-year average P/E, it remains 10.10% below its 52-week high, underlining the risk of instability in this space.

1-Year Return Perspective: Large Caps Still Shine

While small and mid-caps have surged more recently, a 1-year performance view places the Nifty 50 TRI on top with an 8.16% return, ahead of the small-cap and micro-cap indices. This trend underscores the steady resilience of large-cap stocks, especially during volatile or uncertain times. Small-cap and micro-cap returns over the same period were more muted, likely reflecting their already elevated valuations at the start of the year and the subsequent correction that followed.

Strategic Investment Insights

The performance and valuation data reveal differentiated opportunities across market caps. For conservative investors, large caps such as those in the Nifty 50 and Nifty 500 offer the most compelling mix of valuation comfort and stable earnings visibility. Yes, large cap is now for the defensive investing category for the market and not for aggressive equity investors. Gone are the days of large caps becoming multibaggers.

 For moderate-risk investors, mid-caps—particularly the Nifty Mid Cap 150—are trading at attractive discounts, suggesting long-term entry opportunities.

Small caps, while delivering strong returns, are currently priced at a premium. This requires a more selective, bottom-up approach with a focus on earnings quality and balance sheet strength.

Conclusion: Navigate with Valuation Discipline

The Indian equity markets have rewarded investors with strong returns across all segments so far in 2025. However, this upward trend also brings valuation challenges and risk management imperatives. As investors gear up for the second half of the year, maintaining valuation discipline, focusing on fundamentally sound businesses, and aligning investment decisions with risk tolerance will be key.

Whether one chooses the comfort of large caps or the growth potential of smaller segments, a balanced, research-driven approach is essential to navigating the evolving Indian equity landscape in the months ahead. Often its being found the wrong comparison of investment portfolio with an index leads to loss of wealth for investors. Wrong assumptions and expectations are the key ingredients of wealth destruction.

Read More

When India will match with Nato Numbers?

As geopolitical tensions rise and global security dynamics evolve, NATO is preparing to take a historic leap in defence preparedness. Ahead of its upcoming summit, alliance members are aligning on a bold new target: allocating 5% of their Gross Domestic Product (GDP) towards defence and security by 2035. This marks a significant shift from the current 2% commitment, reflecting the urgency to modernise forces, bolster deterrence, and address emerging threats in a rapidly changing world.

 1. Largest Additional Military Outlays Needed (in USD):

•  USA: $503 billion more annually (current spend already at 3.3% of GDP)
• Germany: +$135 billion
• France: +$89 billion
• Italy: +$80 billion
• Spain: +$60 billion

These five economies would need to substantially increase their military budgets to meet the 5% goal.

2. High Debt Vulnerabilities:

• Countries like Italy (135%), Greece (154%), France (113%), Spain (102%), and Belgium (105%) already have debt-to-GDP ratios above 100%.
• Increased military spending could strain public finances, escalate borrowing costs, and potentially trigger austerity trade-offs in social sectors.

3. Low-Debt, High-Gap Nations:

• Even fiscally healthier countries (e.g., Sweden, Denmark, Norway) would require significant relative increases in military spending — around $10–20 billion extra annually — despite having lower debt levels (~30–40%).

4. Who’s Almost There?

• Poland is closest, already spending 4.1% of GDP; it would need only $7.7 billion more, relatively modest compared to others.

NATO’s new 5% GDP defence spending target by 2035 is significantly higher than India’s current 1.9%.  2025-26 Defence Budget: India's Ministry of Defence (MoD) has allocated ₹6.81 lakh crore (approximately $78.7 billion) for the fiscal year 2025-26, marking a 9.53% increase from the previous year's ₹6.22 lakh crore ($74.3 billion). This makes India the fourth-largest military spender globally, behind the US, China, and Russia

Key Focus Areas:

• Modernisation: Investments in drones, air defence systems, tanks, fighter aircraft, helicopters, and naval capabilities (e.g., submarines, aircraft carriers).

• Self-Reliance (Aatmanirbhar Bharat): 75% of the modernisation budget supports domestic industries, reducing reliance on imports.

• Border Infrastructure: ₹7,146.50 crore allocated to the Border Roads Organisation, up 9.74% from 2024-25, to counter China along the Line of Actual Control (LAC).

 

💡 Strategic and Economic Implications:

🔸 Political Challenges:

• Governments will face domestic resistance in reallocating funds from welfare, healthcare, or education to defense.
• Rising debt may force tax hikes or budget cuts elsewhere.

🔸 Defense Industrial Surge:

• A long-term shift toward 5% GDP spending could supercharge the defence sector across NATO — boosting jobs, R&D, and manufacturing.

🔸 Economic Risk Management:

• Countries like Italy, Spain, and France may need gradual ramp-ups or EU fiscal coordination mechanisms to absorb the shock.

 

✍️ Conclusion:

To match NATO’s goal, India would need to allocate around $250 billion annually by 2035 (assuming a $5 trillion GDP), a five-fold increase from current levels. This is unlikely without massive economic growth or reallocation from other sectors.  India’s focus remains on balancing modernisation with self-reliance, prioritising domestic procurement over import-heavy budgets like some NATO members

 The NATO-wide 5% GDP military spending target marks a strategic pivot — but it could also become a fiscal stress test, especially for debt-heavy European economies. Countries will need a balanced roadmap that combines defence ambition with fiscal prudence, likely involving multi-year planning, phased commitments, and innovative financing.

Moreover, defence spending is not just a matter of financial allocation—it demands effective planning, execution capacity, and industrial readiness. The potential surge in budgets must be matched by a parallel expansion of defence manufacturing capabilities, innovation in military technology, and modernisation of command structures. Without this, higher spending could risk inefficiencies and misallocations.

This strategic pivot, therefore, calls for a multi-dimensional approach: a phased and flexible implementation timeline, transparent national defence roadmaps, collaborative EU-NATO coordination mechanisms, and public engagement to build consensus. NATO must also recognise that not all member states share the same fiscal capacity or threat perception, and one-size-fits-all targets may require tailored commitments and burden-sharing models.

Read More

IS NSE PRICE JUSTIFIED

A huge number of questions, doubts on NSE have created a sleepless night for many clients from retail to even HNI.  Lack of clarity on pricing and justification of pricing is a major issue in the world of unlisted shares.  Many miss-selling cases have come up from the unlisted world, and it still continues.  Lack of information and herd mindset of investors is also the prime greed, fuelling the mis-selling. Where and when will SEBI get into action for the price discovery mechanism? Are we waiting for a few more hiccups?

 Many clients have come down on the street to have basic insights on NSE and other stocks in the unlisted segment.  Retail is the segment that often gets stuck and bears heavy losses. Does information gap fuel prices?  Retirement clients are at the biggest end of the risk curve when it comes to investing in the unlisted space. The beautiful portrayal of wealth creation often ends up with the wealth destruction of a family for ages.

As India’s most anticipated IPO looms, the National Stock Exchange (NSE) has found itself at the centre of an intense valuation debate. With its unlisted share price skyrocketing from ₹1,500 to as high as ₹2,400 in just two weeks—a stunning 60% rally, and 140% over four years (from ₹740 in 2021), driven by IPO anticipation and strong investor demand.

Investors and analysts are questioning whether the surge reflects genuine fundamentals or is merely a product of IPO-driven hype.

At ₹2,400 per share and a post-bonus share base of 247.5 crore, NSE’s implied market capitalisation now stands at a staggering ₹5.94 lakh crore ($71 billion). While strong financials and resilience against regulatory headwinds offer a solid foundation, the recent price momentum seems to outpace revenue and earnings growth, raising concerns about speculation in the unlisted market.

 From the market Capitalisation: At ₹2,400 per share, with 247.5 crore shares (post 4:1 bonus in May 2024), the implied market cap is ₹5.94 lakh crore ($71 billion). Recent Surge of the share price has risen 60% in two weeks (from ₹1,500)

Bank Nifty weekly options accounted for approximately 47.5% (₹25.96 trillion) of NSE's weekly options premium turnover in the first half of FY25 (April–September 2024), compared to 34.4% (₹18.81 trillion) for Nifty 50

Estimates suggest that discontinuing Bank Nifty weekly options could lead to a revenue drop of 15-20% if NSE had retained Bank Nifty as the weekly expiry product, but opting for Nifty 50 instead could result in a larger 30-35% revenue decline. Some trading volumes may shift from weekly to monthly Bank Nifty contracts, potentially mitigating the revenue loss to an extent. However, weekly contracts are typically more popular among traders due to their shorter duration and higher trading frequency, so the shift may not fully compensate for the loss.

The reduction in the number of expiry days from five to two per week and the narrowing of derivative products are expected to redistribute trading volumes primarily to Nifty 50 and BSE’s Sensex indices, further impacting NSE's overall options turnover.

Ashishkumar Chauhan, NSE’s CEO, noted that the overall option index volumes will significantly decline due to the loss of weekly Bank Nifty and other weekly options series, which could challenge NSE’s financial performance in the short term. This is not a short-term impact, but a permanent one.

NSE’s financial performance for FY25 (ending March 31, 2025) demonstrates robust profitability, despite challenges from SEBI’s regulatory reforms:

• Revenue: Total revenue grew 16.7% YoY to ₹19,176.83 crore, with operational revenue in H1 FY25 up 35% YoY to ₹9,000 crore.

• Net Profit: Consolidated net profit surged 47% YoY to ₹12,187.94 crore, with Q4 FY25 profit at ₹2,650.11 crore (up 6.55% YoY).

• Profit Margins: NSE reported a 74% operating margin in Q4 FY25 (up from 66% YoY) and a 75.59% EBIT margin for FY24, reflecting operational efficiency.

• Earnings Per Share (EPS): ₹169.82 in FY24, with a projected annualised EPS of ₹40 post-bonus, indicating strong returns.

• Dividend: A proposed ₹35 per share dividend (3,500% for FY25) underscores NSE’s shareholder-friendly approach.

• Return on Equity (ROE): 35% in FY24, highlighting efficient capital utilisation

 

Valuation Analysis: Share Price vs. Revenue

To assess whether the share price is inflated, we can use the Price-to-Sales (P/S) ratio and compare it to peers, alongside other contextual factors:

• Price-to-Sales (P/S) Ratio:
• Calculation: Market cap (₹5.94 lakh crore) ÷ FY25 revenue (₹19,176.83 crore) = ~31x P/S ratio.
• Peer Comparison:
• BSE (listed): Market cap ~₹95,000 crore, FY25 revenue ~₹3,600 crore (estimated), P/S ~26.4x.
• Interpretation: NSE’s P/S ratio of 31x is significantly higher than BSE (26.4x) and global peers (8–12x), suggesting a premium valuation relative to revenue. This indicates potential inflation, especially given the unlisted market’s speculative nature.
• Revenue Growth vs. Share Price Growth:
• Revenue grew at a CAGR of 33% from FY22 to FY25, while the unlisted share price surged 140% over four years and 60% in two weeks.
• The rapid share price increase outpaces revenue growth, hinting at speculative momentum driven by IPO expectations rather than purely revenue-based fundamentals.

 Gap Between Unlisted Share Price and Profitability

To assess whether there is a gap between NSE’s unlisted share price and its profitability, we can analyse valuation metrics and compare them to fundamentals and peer performance:

• Price-to-Earnings (P/E) Ratio:

At ₹2,400 per share and an EPS of ₹169.82 (FY24), NSE’s trailing P/E is approximately 14.13x. For FY25, assuming a net profit of ₹12,188 crore and 247.5 crore shares, EPS is ~₹49.24, yielding a forward P/E of ~48.  Some sources (this is the place of manipulators) report a P/E of 35x forward earnings or 45x, suggesting NSE is undervalued compared to BSE, which trades at 52.75x forward P/E. But when NSE’s P/E is attractive relative to BSE, it indicates that its share price may not fully reflect its profitability. The lower P/E suggests potential upside, especially with IPO expectations.

NSE’s revenue and net profit grew at a CAGR of 33% and 36%, respectively, from FY22 to FY25.

• Despite SEBI’s restrictions on weekly options (e.g., Bank Nifty discontinuation), NSE’s profitability remains resilient, supported by diversified revenue streams (equities, derivatives, data analytics) and 14 million new demat accounts in FY24.
•  Strong fundamentals support the recent share price surge, but the rapid 60% rise in two weeks may reflect speculative IPO-driven demand rather than purely profitability. Hence, the recent surge of price from Rs 1500 to Rs ₹2,222 to ₹2,400 per share, with some reports citing a high of ₹2,325 as of June 16, 2025, is totally artificial and has lesser justification at the backend.

 

Is There a Gap?:

 NSE’s unlisted share price (₹2,222–₹2,400) appears undervalued relative to its profitability, given its low P/E (35x–48.74x) compared to BSE (52.75x) and global peers, robust 47% profit growth, and 74% operating margins. However, the recent 60% price surge in two weeks suggests speculative momentum driven by IPO anticipation, which may temporarily inflate prices beyond fundamentals.

The valuation gap indicates potential upside if NSE lists successfully; however, investors should be cautious of risks such as limited liquidity, regulatory delays, and SEBI’s F&O reforms potentially impacting future revenue (e.g., an estimated 15–35% loss from Bank Nifty weekly options closure).

Investors should conduct due diligence and consult SEBI-registered advisors, as unlisted shares carry inherent risks.

Read More