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.

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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.

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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.

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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.

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