NAZAR & SABAR- Investor & MFD for both required

Portfolio advisory has become a major issue now since Nazar and Sabar are highly required for investment decisions to be made ahead of time.   Falling GDP growth, rising inflation, pay cuts and job cuts through AI, confused central banks regarding whether to hike interest rates or not and last but not least, the tariff war and war alone. All these are making the global economy beyond uncertainty. The latest warning from the Organisation for Economic Co-operation and Development underscores a familiar but dangerous sequence: war-driven disruptions in energy markets are reigniting inflationary pressures and clouding the global growth outlook just as the world economy was attempting to stabilise. I am surprised people who do not come from a finance background have come up with podcasts and YouTube videos. Is SEBI keeping a watch on them? Loss of investments is notional till the same is booked. 90% of the investors are worried about notional loss and not real loss. This makes decision-making hard for an advisor to guide and convince their clients.  The statement of our Prime Minister, Mr Narendra Modi, is a matter of concern and should not be shredded.

Don't think about returns since now is the time to wait and watch, since Sabar will make you win, and nazar will help you to identify the fake rallies.

Let’s be very frank and open that we don’t know whether this is the last war or if more stuff is awaited. Past returns have turned out to be negative, despite the long-term investment objective, since the behavioural aspect of the client getting scared and greedy is hard to align.  NRI-focused MFDs' business will take a hit since remittance will dry up.  Maharashtra and Kerala top the list, together capturing over 40% of India's Gulf remittances, based on FY2023-24 RBI data that holds steady into 2026 amid ongoing flows. Hence, MFDs will take a hit this year due to the current war issues.

Rising energy costs from the conflict directly hit consumer prices, with secondary effects on core inflation via supply chain strains and wage pressures. Europe faces steeper risks due to energy import reliance, potentially forcing ECB rate hikes. Early 2026 growth has held from prior momentum, but analysts see tariffs and uncertainty clouding the outlook further.

The Middle East remains a critical artery for global oil and gas supply, and any disruption—whether physical or perceived—immediately translates into higher prices. Energy, unlike many other commodities, sits at the base of the economic pyramid. It influences transportation, manufacturing, logistics, and even food production. As prices rise, the effect cascades across sectors, creating a classic case of cost-push inflation. The OECD’s projection of G20 inflation at around 4%, with U.S. inflation near 4.2%, reflects not just temporary volatility but the risk of inflation becoming structurally sticky. Over the past two years, monetary authorities have worked aggressively to tame price pressures through rate hikes. The immediate impact is not so much since inflation has been low and adjustments have been mixed across different countries.

Higher interest rates, combined with rising input costs, create a dual burden on economic growth. Further, the global nature of this challenge makes it particularly complex. Import-dependent economies, such as those in Europe and parts of Asia, face additional pressure through worsening trade balances and currency volatility. But as I said, nazar and sabar are important-the current impact of this war is not uniformly negative across all sectors. Many countries benefit and get opportunities where the cost of manufacturing is less, which leads to the supply of goods at lower production costs. India stands to benefit from the judicious use of its abilities and resources through government agencies.

India's strategic oil reserves, diversification to Russia, and robust fundamentals (e.g., 7%+ GDP growth momentum) provide buffers against prolonged shocks. RBI may delay rate cuts to tame inflation, prioritising stability over stimulus. Prolonged conflict could shave 0.5-1% off growth if oil averages $90+/barrel.

Conclusion:

Investment opportunities for MFDs from their clients will slow down as reduced Gulf remittances from the Middle East conflict would strain millions of Indian households, particularly in migrant-heavy states like Kerala, Uttar Pradesh, and Tamil Nadu, where these inflows fund 30-50% of consumption for recipient families. India received $51.4 billion from Gulf nations in FY2025 (38% of $135.4 billion total remittances), supporting essentials like food, housing, education, healthcare, and real estate. A 10-20% drop—potentially $5-10 billion annually in a prolonged conflict—could curb spending, raise poverty risks, and slow rural-urban consumption that drives 60% of GDP.  

The bottom line is clear: war acts as a multiplier of economic risk. By pushing up energy costs, sustaining inflation, and delaying monetary easing, it constrains the very conditions needed for a durable global recovery. As long as these geopolitical tensions persist, the world economy will remain in a state of cautious resilience—growing, but below potential, and always vulnerable to the next shock.

Read More

How Far Could the Rupee Slide?

The whole market and Indian economy, and its analyst community, are busy focusing on uplifting the statements that will get Nifty back to the 26000 levels. For this, we want to ignore every negative aspect and risk of the market. We have diverted our mind to the Iran war and its impact on the Indian market, whereas at home, we have a major issue of depreciating uncontrolled INR. INR have been a major issue in the last  6 years since the day we got into Covid lockdown. The FII’s are also sceptical to invest in India for this particular reason, more than the valuations and earnings. The current fall is an opportunity that DIIs and FII’s both know, but does that excite FIIs to invest or redeem?

India's forex reserves at ~$710 billion look ample (covering ~11 months of imports), but quality matters more than quantity:

Foreign Currency Assets (FCA) erosion: Down to $555 billion from $621 billion in September 2024—a 10%+ drop. FCA's share has shrunk to <78% from >90% pre-2020, limiting RBI's dollar-selling firepower for interventions.

Gold dominance: Holdings up ~4x in five years (now ~$70–80 billion equivalent at current prices), boosting total reserves but illiquid for daily FX defence. RBI sold minimal gold historically; it prefers spot USD.

Likely $80–100 billion now (official data lags), tying up future dollars for importers/exporters. This amplifies intervention costs without immediate liquidity. RBI data (weekly bulletins up to March 2026) confirms these trends. Similar 2021–22 dips saw INR hit 80/USD before a partial recovery.

External and Domestic Triggers:

Current account flip: Q4 surpluses (0.2–0.7% GDP) relied on services exports ($110B+ annually) and remittances ($30B+ quarterly). Now, trade deficit widened to $30B/month (oil at $75–80/barrel, imports up 15% YoY), Middle East tensions cut remittances 5–10%, risking 1–2% GDP deficit.

Capital outflows: FIIs pulled $10B+ in 2025 amid US rate hikes (Fed funds at 4.5%) and global risk-off. India's 7%+ fiscal deficit deters inflows.

REER signal: Below 100 since mid-2025 (RBI index), indicating overvaluation correction—INR "should" weaken 5–10% for competitiveness, per BIS models.

Historical parallels: 2013 taper tantrum (INR 68/USD), 2022 Ukraine shock (83/USD)—each saw 10–15% slides over 6–12 months.

India’s foreign exchange reserves have dipped below $710 billion, falling from a recent high of over $728 billion just weeks ago. On the surface, this still appears to be a comfortable buffer. However, a deeper look at the structure of these reserves points to growing vulnerabilities.

A key area of concern is Foreign Currency Assets (FCA), which have declined to roughly $555 billion. This level is not only lower than recent months but also below what India held back in 2021. Over time, the share of FCA in total reserves has steadily fallen to under 78%, compared to more than 90% a few years ago. While rising gold prices explain part of this shift, the drop in absolute FCA levels—around 10% lower than in September 2024—highlights a more structural issue.

Gold, on the other hand, has become a much larger component of reserves. Driven by both higher prices and increased accumulation, India’s gold holdings have expanded nearly fourfold over the past five years. While this adds strength to the balance sheet, it reduces the Reserve Bank of India’s (RBI) ability to actively manage the currency, since interventions typically rely on selling dollars rather than gold.

Adding to the pressure is the RBI’s forward book, which has already exceeded $60 billion and may now be approaching $100 billion. This reflects ongoing efforts to manage currency volatility but also signals rising commitments in the market.

Externally, India’s position may also weaken. The country recorded a current account surplus in the fourth quarter over the past two years, supported by strong services exports and steady remittances. This time, however, the outlook is less optimistic. A widening trade deficit and softer remittance inflows—particularly due to tensions in the Middle East, which contributes about 40% of such flows—could push the current account back into deficit.

While further RBI intervention is likely, its effectiveness has limits. It can help contain sharp volatility and speculative movements, but it cannot fully counter persistent global pressures. Continued foreign investor outflows and an unfavourable global environment could keep the rupee under strain. This is the place where FII's are concerned about, and this does not attract them to invest in India. The biggest question is that despite the current sharp correction in very pockets, will FII's invest in India now?  Unless the rupee gets into a stable form, the currency risk does not attract them. This also raises the risk of investments for DII's since they alone cannot keep the market alive for long. The SIP book might look attractive today, but it's not sustainable since, currently, every portfolio has wiped out the last 2 years' gains.

Coming to the rupee, if these trends continue, the rupee could drift toward the 97–98 range against the US dollar. The real effective exchange rate (REER), a measure of currency competitiveness, had already fallen below 100 by mid-2025 after a prolonged period of overvaluation. Past episodes—such as the oil price surges in 2007–08 and 2011–14—also saw extended periods of rupee weakness.

In summary, while India’s reserves still offer a degree of protection, their shifting composition and external risks suggest that maintaining currency stability may become increasingly difficult in the near term.

Read More

India’s Buffett Indicator & Midcap/Small cap Signals Moderation-MF is best option

 

One of the biggest questions that has come up from everyone is whether this is the time to invest in stocks or Mutual Funds. For investors, this evolving landscape necessitates a disciplined approach. Staggered investment strategies, such as systematic investment plans, can help mitigate the risks associated with timing the market at elevated levels. A sharper focus on fundamentals—particularly companies with strong return on equity, low leverage, and sustainable competitive advantages—will be critical in navigating the next phase of the market cycle. At the same time, asset allocation assumes greater importance, as diversified portfolios can help balance the impact of potentially lower equity returns. Identification and placing bets on stocks directly is tough, and a mutual fund stands to be more advantageous based on the current market cycles of war.

On the other hand, the widely referenced Buffett Indicator, which measures the ratio of total market capitalisation to GDP, currently places India in the “modestly overvalued” zone. With readings ranging between approximately 115% and 128%, depending on the source and methodology, the signal is clear: markets are not in bubble territory, but neither are they cheap.

Where the Indicator Stands

Recent data points to a market cap-to-GDP ratio in the range of 115% to 128%, depending on the methodology and timing:

• Standard Ratio: ~128% (late January 2026 reference), placing markets firmly in the modestly overvalued band (115–136%)
• Modified Ratio (adjusted for central bank assets): ~114.9%, also within a similar valuation zone

A notable development is the recent market correction, which saw India’s total market capitalisation decline from approximately $5.3 trillion to $4.77 trillion. This pullback has marginally eased valuation pressures, though not enough to shift the broader classification.

With India’s nominal GDP hovering around $3.9 trillion, valuations remain elevated relative to historical comfort zones.

 Now, the other part of the story is that India’s macroeconomic backdrop remains robust. Nominal GDP is projected to grow at approximately 8.6% in FY26, with real GDP growth estimated at 7.6%. This growth is being driven by a combination of manufacturing expansion, services sector resilience, and sustained domestic consumption. Such a strong economic foundation provides a degree of justification for elevated valuations and supports the long-term investment narrative.

Now, does midcap have corrected and small cap, or is further correction expected?

Mid/small caps saw extreme PE multiples (e.g., Smallcap 250 hit 35x vs. long-term median ~24x; Midcap >30-43x at peaks vs. historical ~22x). Even after declines, many remain elevated compared to historical norms or earnings growth.

Current P/E (as of ~March 16-17, 2026)

• Nifty Midcap 150: 30.0 – 30.14 (Fairly Valued zone)
• Nifty Smallcap 250: 24.4 (Moderately Undervalued zone)

Midcap P/E remains higher than Smallcap P/E, reflecting better average quality, scale, and earnings visibility in midcaps. However, the gap has narrowed compared to peak valuations.

• Midcap 150: 3-month PE range = 30.0 – 34.1. It has fallen from the upper end of the range and is now hugging the 3-month low.
• Smallcap 250: 3-month PE range = 24.4 – 29.7. Even steeper compression, now sitting at its 3-month low.

This de-rating aligns with the ~8-11% drop in Midcap 150 and ~9-17% drop in Smallcap 250 over the same period (from their recent highs).

• Midcap 150: Current 30.0 is below its 1-year median (33.5) and closer to 5-7 year medians (31).
• Smallcap 250: Current 24.4 is well below its 1-year median (30.3) and 3-year median (28.7) → more attractive on a relative basis now.

Note: These are trailing P/E ratios. Forward P/E would look slightly different depending on expected FY27 earnings growth.

Any further fall of markets is an opportunity for investments and a bounce back of midcap and small cap.

 Conclusion:

The recent fall has made smallcaps look relatively cheaper than midcaps on a P/E basis, but smallcaps carry higher risk and volatility. Midcaps continue to command a premium due to stronger fundamentals on average. This correction has eased some of the extreme froth seen in 2024-early 2025 (when Midcap PE often exceeded 35-40x and Smallcap approached 35x+). Valuations are now closer to long-term averages, though not yet deeply cheap. The era of liquidity-driven, broad-based rallies appears to be giving way to a more discerning phase in which valuations and earnings quality take centre stage. 

In such an environment, beta-driven strategies are likely to deliver diminishing returns, while alpha generation through careful stock selection becomes increasingly important. Volatility, too, is expected to rise, particularly as markets react more sensitively to earnings disappointments and macroeconomic signals. Invest in mutual funds and not through stocks since during war, you don't know which stock will perform.

Read More

Is this time for Midcap /Small cap or till to be on the large cap side?

 The 3^rd quarter is over, and the results have been mixed. But among so many results, what we need to find out is where the funds will flow in the coming days? Which sectors are going to be attractive? Are we still betting on large caps and avoiding  Midcap and small cap? Those who kept crying that small and midcap should be avoided, and they are overvalued and will not perform in the coming quarters -are they correct?

Out of 5,130 companies, 4,455 reported Q3 FY26 results, delivering 14.07% YoY topline growth and 10.75% bottom line growth, driven mainly by mid, small, and micro-caps. India Inc saw adjusted PAT rise 15% YoY to ₹3.97 trillion, the highest in eight quarters, with revenue up 11.6%. Large caps grew moderately at around 13%, while small caps surged 32%. The two trade deals will open up more opportunities and growth for the Indian small and midcap companies, where the earnings will become more visisble supported by domestic macro factors. In short, large caps have become like bank FD rates, where you will not create wealth but only safety and erosion of returns, where inflation is being adjusted. 

Large-Cap Performance

Nifty 50 companies posted 9.33% topline growth but just 0.57% PAT growth YoY after new labour code adjustments, marking the seventh straight single-digit quarter since June 2020. Five firms—SBI, Tata Steel, HDFC Bank, TCS, Bharti Airtel—drove 78% of earnings accretion.

Mid/Small-Cap Strength

Nifty Next 50 delivered 28% EPS growth on a TTM basis, with mid-caps achieving double-digit growth for the fourth consecutive quarter. Mid-caps hit 16% PAT growth, small-caps 30-32%, led by real estate, industrials, and cement. This resilience highlights mid- and small-caps as earnings champions post-consolidation. Midcap stocks showed strong earnings beats in Q3 FY26, with 50% reporting positive surprises versus 39% for large caps and small caps (42%). Operational discipline and sustained business momentum drove EBITDA expansion of over 50% in select mid-cap companies, underscoring robust demand and margin strength. The rate of missing was materially lower at 28% versus ~40% in small caps, highlighting superior resilience amid global macro uncertainty. Strength in industrial metals and digital commerce further supported earnings recovery, positioning mid-caps for selective alpha generation even as large-cap headwinds persist.

Midcaps led with double-digit PAT growth and higher beat ratios (50% positive results), outperforming small caps (42%) amid resilient operations. 

 Top Sectors

Key contributors included Gems & Jewellery (strong YoY revenue/margins), FMCG, Oil & Gas, Chemicals, Real Estate, Electricals, Capital Goods, Hospitality, and Finance. Cyclicals like metals, autos (25%), real estate (64%) fueled index growth.

Lagging Sectors

Drag factors were Telecom, Textiles, Construction Materials, Auto & Ancillaries, Consumer Durables, Software/IT Services, and Manufacturing. IT faced margin pressure from labour costs; financials hit a decade-low growth. Non-cyclicals like IT/FMCG showed subdued performance.

For H1 FY26 (April–September 2025), smallcaps and midcaps showed positive gains in some reports (e.g., BSE MidCap +7.7%, BSE SmallCap +12.1% in April–September 2025), but Q3 specifically aligned with volatility and uncertainty leading into year-end.

Post-Q3 (into January–February 2026), smallcaps saw a sharp rebound (e.g., Nifty Smallcap 100 up over 6% in early February 2026 sessions, tied to better-than-expected Q3 earnings in some sectors and global sentiment shifts).

Midcaps outperformed large caps in Q3 FY26 earnings, posting 16% PAT growth and 50% positive surprises versus large caps' 13% growth and 39% positives. This is well reflected when we find out that the exposure to high-growth areas such as e-commerce (e.g., FSN E-Commerce's robust revenue/margins), real estate, cement, metals, and NBFCs boosted results, unlike largecaps weighed by IT slowdowns and banks. Smaller scale enabled faster growth at their size, with midcaps showing superior compounding potential amid capex revival. The same story is applicable for mutual funds where IT has a larger exposure. Now, a short-term flip of 10 % or 15% gain in prices is not an IT sector recovery. The divergence highlights midcaps' role in India's expansion story, offering re-rating, which many of us have been ignoring.

Read More

Indian IT -Look into your investments & Mutual Funds .

Fund managers and CIOs who invested and bet on the growth of the Indian IT industry despite knowing that the industry faces AI-related risks are a type of blind act by the fund management community. Mutual Funds which are having IT exposure are simply impacting two segments of mutual fund returns: 1) Loss of return from the sector, 2) Loss of investing opportunity in other sectors in place of IT.  Financial advisors need to look into such portfolios and need to rebalance and reinvest in other funds where IT is either very low or next to zero allocation. Now the biggest question in mind will be why one acts like this?  

Does this mean the IT sector will struggle for long, and one will not get the historical returns, also? When we further investigated and found a huge long-term gap which impact the long-term returns too. One needs to revisit the thematic funds allocation.

One must understand the various angles of the IT industry problems created over the past 10 years, and there is no immediate relief or solution.  The Indian IT sector is an old-age home. Mr Murthy might criticise people asking to work 70 hours but not investing enough in R&D. The biggest problem with the IT industry, which is like a disease, is that they have a sales mindset and not an R&D mindset, which creates more problems to adapt to the culture of R&D in IT. Supply of cheap labour and aggressive buyout of companies to uplift the shareholders' value and market capitalisation of shares is no longer going to survive in the Indian IT industry. Get ready for more correction in in the Indian IT sector since the culture of R&D will take time to get adopted and reflected in numbers on the P&L and balance sheet.

The Indian IT industry has historically allocated a low percentage of revenue to research and development (R&D), typically ranging from 0.5% to 1.2% across major firms. This is significantly below global averages for tech sectors, where peers in the US, China, and other countries invest 29-55% of profits in R&D. The industry as a whole has focused more on operational efficiency and shareholder returns rather than innovation-led growth.

Annual R&D Spending (Recent Years)

·        TCS: ~₹2,751 crore (1.1% of revenue) in FY24, consistent at 1.0-1.2% since FY15.

·        Infosys:  ~₹655 crore (0.5% of revenue) in FY23, stable at 0.5% since FY17 (down from 1.3% in FY15).

·        HCL Tech: ~₹552 crore (1.1-1.3% of revenue) in FY23, up from 0.6-1.0% pre-FY20

·        Wipro and Tech Mahindra: Similar patterns, with R&D at 0.5-1.0% of revenue, estimating ~₹500-600 crore each annually based on comparable peers.

 

 

 Further, in the last 10 years (FY16-FY25) its estimated total over 10 Years Aggregating data for the top 5 firms, cumulative R&D spending is approximately ₹40,000-50,000 crore. This is derived from average annual spends of ₹4,000-5,000 crore across these companies, scaled over the decade.

The broader IT/software sector (including mid-tier firms), annual R&D was ₹1,500-1,600 crore in recent years, suggesting a 10-year total of ~₹15,000-20,000 crore, though this may undercount expensed R&D not always reported as a separate line item.

Now, how much profits they earn, and what is the contribution to R&D, shareholders wealth and executives perks?  The top 5 IT firms generated ₹8.9 trillion in cash profits since FY16 but reinvested only 13.5% (~₹1.2 trillion) in growth/expansion (including some R&D), highlighting a preference for other uses of capital.

The buybacks are the biggest use of profits, where the company utilises its funds rather than investing in R&D.

For the top 5 IT firms, cumulative buybacks exceed ₹200,000 crore.  Including mid-tier firms (e.g., Persistent Systems, L&T Infotech), the industry total is likely ₹220,000-250,000 crore. In 2023 alone, IT-heavy buybacks contributed to ~₹48,000 crore across 48 companies, with TCS spending ₹17,000 crore.

Over the decade, ~73% of cash profits from top IT firms (₹6.46 trillion out of ₹8.9 trillion) went to dividends and buybacks.  For the last 5 years (FY21-FY25), buybacks by top IT firms totalled ~₹120,000-150,000 crore, driven by post-pandemic cash surpluses.

So when you don’t have an AI agent of your own, you are bound to lose jobs and lose investment value in the Indian IT industry. Now the funny part will be that these giants will ask the government for freebies for setting up R&D.

Now the final chunk of profits went to the back of C-suit salaries. Top executive (CEO and C-suite) compensation in Indian IT has surged significantly, outpacing general employee wage growth amid strong profitability. Over the last 5 years, CEO pay at top IT firms rose by ~160%, while fresher salaries increased only by ~4%.

In the past decade, average CEO pay across listed firms doubled to ~₹7.2 crore (9% CAGR), but IT executives earn far higher, often in the ₹50-150 crore range due to performance bonuses, stock options, and variable pay (60% of total).

The investment is so low that this sector will struggle for a long time. Even some buyouts of IT platforms will not be of any help for the sector. It's time for financial advisors to relook into various sectors and realign the funds accordingly and investments. Those who are thinking that the current fall is an opportunity to buy well, the cheap is yet to become cheaper and the cheapest. Hence, wait and watch.

Read More

For FII's, we can't stop the sell off, we offered nothing

 

There is little to celebrate in the fiscal math. There is nothing to be bullish about FII's. Earnings will take time to motivate FII's, and the buyback hammer will look for more re-adjustment in portfolios.  This budget does not create confidence instantly, but increases the volatility in the market.  best time to pick and choose rather than going blindly. Sunday, we saw the market and now wait for the week to see where we head.  We can't run the show of the Indian capital market on SIP and retail money. Even a risk free retun earns 4.5 for  FII's. We are just assuming falling interest rates will get inflows back to India, well china and other markets are looking ahead to attract FII's. Outlook does not exite FII's.  India needs to understand that capital market is too under competetion with other countries just like trade agreements.

Gone are the days when one used to expect tax cuts in budgets, reduction in gas cylinder prices,  reforms in 80cc and reduction in capital gain tax.  The new budget mechanism speaks loudly that we don’t expect big announcements as expected in the last 10 or 15 years. You will not find a galloping market but a real fight for earnings to let the market grow and, more importantly, investors' wealth to grow.

For FII’s, this budget is of no value. They will not find this market to be attractive compared to other markets. We lack confidence in our own maths. INR will be deprecated more and more rupees will flow out of India. STT is another pinch where FII’s and institutional players will have to cough up more. Gold will look super interesting now.

The financial performance of the Union Government in FY 2025–26, as reflected in the Revised Estimates, raises uncomfortable questions about the quality of fiscal consolidation underway in India.  It’s a balanced budget and focuses more on job creation. The time has come to focus on being an entrepreneur rather than just being a salaried person. The budget is balanced and focused on job creation.  Revenue receipts and net tax collections are under pressure, signalling an economic slowdown well before it becomes visible in headline GDP data. FII's now also lost the NRI gateway for deploying money in India. Now the NRI can come directly. On one side, it's okay, but on the other side, it will fuel redemption.

There have been cuts in many places. Revised revenue receipts for FY 2025–26 have been scaled down by ₹78,086 crore, while net tax collections are lower by a substantial ₹1,62,748 crore. These revisions are not marginal adjustments; they point to a clear slowdown in underlying economic activity, weaker consumption, and subdued profitability across segments of the economy. In response, the government has opted for expenditure cuts totalling ₹1,00,503 crore, with capital expenditure alone bearing a reduction of ₹1,44,376 crore. This is particularly concerning because public capex has been positioned as the primary engine of growth in recent years.

While the headline narrative highlights a controlled fiscal deficit and macro stability, a closer examination of the numbers reveals that this outcome has been achieved largely through sharp expenditure compression, rather than through durable revenue strength or economic buoyancy.

Despite optimistic headline numbers, Budget Estimates for FY 2026–27 reveal continued fiscal compression.

Lower Allocations in FY27 (BE) vs FY26 (RE)

• Crop Insurance Scheme
• Urea Subsidy
• PM Garib Kalyan Anna Yojana
• Aircraft & Aero Engines (Defence)
• Naval Dockyard Projects
• Air Force Projects
• National Security Technology
• LPG Connections for Poor Households
• Estimated nominal GDP growth for FY27: 10%, lower than the current fiscal year

Key Takeaways

• The fiscal deficit target of 4.4% has been achieved primarily through aggressive expenditure cuts, not through revenue strength.
• Critical sectors—health, education, agriculture, social welfare, and SC/ST/OBC scholarships—have borne the brunt of fiscal consolidation.
• Capital expenditure credibility is weakened, given that ₹1.44 lakh crore of capex was cut in FY26 itself, raising doubts over the sustainability of the ₹17.15 lakh crore capex headline for FY27.
• Sharp weakness in revenue and tax receipts signals an underlying economic slowdown.
• Cuts to essential schemes like drinking water and housing, amid ongoing public health concerns, raise serious policy questions.

These focus on direct cash to adult women via DBT:

• Madhya Pradesh: Mukhyamantri Ladli Behna Yojana — ₹1,500/month, ~1.27-1.29 crore beneficiaries.
• Maharashtra: Mukhyamantri Majhi Ladki Bahin Yojana — ₹1,500/month.
• Karnataka: Gruha Lakshmi Scheme — ₹2,000/month to the female head of household.
• Tamil Nadu: Kalaignar Magalir Urimai Thogai Thittam — ₹1,000/month.
• Others in states like Jharkhand (Maiyan Samman Yojana, up to ₹2,500/month), Assam, West Bengal, etc.

As of 2025-26 estimates, 12 states collectively allocate ~₹1.68 lakh crore annually for such women's UCT schemes (up sharply from just 2 states in 2022-23). This reflects political popularity, especially post-elections, but raises fiscal concerns (e.g., state debt increases in MP/Maharashtra, some allocations slashed in FY26 budgets). Hence, the announcement of Rs1.46lakh cr given to the state is given for this purpose only.

Supporters will argue that “tough choices” are necessary. But tough choices usually demand confronting structural issues—tax buoyancy, employment creation, widening inequality—not quietly withdrawing the state from sectors that lack immediate market visibility. Are the government freebies pinching?

Read More

Many Reforms for NRI's - Budget 2026-27

The Union Budget presented on February 1, 2026 (FY 2026–27) introduced several measures aimed at easing investment, simplifying compliance, and reducing transaction frictions for Non-Resident Indians (NRIs). The reforms span capital markets, taxation, remittances, and disclosures, making India a more attractive destination for overseas Indian capital.

1. Easier Equity Investments via PIS: NRIs and other Persons Resident Outside India (PROIs), including PIOs, can now invest more freely in Indian listed equities through the Portfolio Investment Scheme (PIS):

·        Individual investment limit per company increased from 5% to 10%

·        Aggregate overseas individual limit raised from 10% to 24%

This significantly enhances NRIs’ ability to build meaningful equity stakes in Indian companies and deepens foreign participation in domestic markets. Equity products like PMS & AIF will find a huge boost.

2. Simplified TDS for NRI Property Sales:  To reduce procedural complexity in real estate transactions. TDS on the sale of immovable property by NRIs will now be deducted by the resident buyer using PAN only. TAN registration is no longer required. This streamlines compliance, cuts paperwork, and accelerates transaction timelines. This reform primarily benefits resident buyers (easing their side), but has strong positive ripple effects for NRIs selling property

3. Sharp Reduction in TCS under LRS: Tax Collected at Source (TCS) rates under the Liberalised Remittance Scheme (LRS) have been substantially lowered:

·        Education and medical treatment abroad: from 5% to 2%

·        Overseas tour packages: from 20% to 2%

These changes reduce cash-flow strain for NRIs and their families funding overseas education, healthcare, or travel. This reform primarily benefits resident Indians funding overseas needs but has significant positive implications for NRIs (especially those with family in India or planning visits/returns). Huge relief for middle-class families sending kids to foreign universities or funding treatments (e.g., in US, UK, or Gulf countries). Reduces financial strain, especially with rising education/medical costs.

Benefits for NRIs indirectly:

• Easier for resident relatives to send money abroad to NRIs (e.g., for family support, property maintenance, or investments).
• NRIs planning to remit back to India or fund family needs face less friction when routing through LRS.
• Encourages more cross-border family financial support without a heavy tax drag.

4. Additional Relief Measures

Extended timelines to update income tax returns, including in certain post-reassessment cases, upon payment of additional tax

One-time disclosure schemes for foreign assets, targeted at small taxpayers, students, and returning NRIs, to encourage voluntary compliance

Conclusion:

While tax rates remain largely unchanged, the 2026–27 Budget focuses on reducing friction, improving ease of doing transactions, and attracting long-term NRI participation in India’s economy. The cumulative impact is a more investor-friendly and compliance-light framework for overseas Indians. Aligns with the government's goal to make India more open, support global mobility, and reduce "unfriendly" tax perceptions on overseas spending. Timely amid rising global education/medical/travel costs. It makes overseas aspirations more achievable for Indians and supports NRIs' family connections.

Read More

Total Return Swaps on Corporate Bonds Announced in Budget is a game-changer

A total return swap is a financial derivative contract between two parties: the "total return payer" (often the asset owner, like a bank) and the "total return receiver" (an investor).

A TRS on a corporate bond, the payer transfers the total economic performance of the bond—including interest payments, fees, and any capital gains or losses—to the receiver. In exchange, the receiver makes periodic payments based on a fixed or floating rate (e.g., based on benchmarks like SOFR plus a spread).

 

At the end of the swap's term, the receiver may also pay for any depreciation in the bond's value or receive compensation for appreciation.

 

Importantly, the receiver gains exposure to the bond's returns without actually owning or funding the asset outright, while the payer retains the bond on their balance sheet but transfers the associated risks.

 📌 Why This Proposal is Significant

This proposal means enabling such swaps in the domestic market to boost liquidity, allow synthetic exposure to corporate bonds, and facilitate better risk management tools like hedging credit and market risks.  Improved bond liquidity via swaps, easing secondary market trading and reducing holding costs

India's corporate bond market stood at approximately ₹53.6 trillion (about USD 640 billion) as of FY 2024-25, growing at a 12% CAGR from ₹17.5 trillion in FY 2014-15. NITI Aayog targets expansion to over ₹100 trillion by 2030 to fund infrastructure and business needs.

Who Benefits?

Introducing TRS on corporate bonds offers several advantages, benefiting various stakeholders in the financial ecosystem:

• Investors (e.g., hedge funds, institutional investors): They can gain leveraged exposure to corporate bonds without the need for full upfront capital or ownership, allowing for efficient portfolio diversification and higher potential returns with minimal cash outlay.

 

This is particularly useful for achieving large positions while managing operational costs and bypassing transfer restrictions.

• Banks and Financial Institutions (as TRS payers): They can transfer credit and market risks off their balance sheets synthetically, freeing up capital for other uses while still holding the assets. This helps in regulatory capital relief and hedging portfolios.

• Corporate Issuers: Deeper markets through TRS could lead to increased demand for bonds, encouraging more issuances (including by lower-rated entities), better pricing, and access to long-term funding at lower costs.

This supports sectors like infrastructure and MSMEs by channelling savings into productive areas. Overall, the TRS enhances liquidity, price discovery, and risk management tools (e.g., credit derivatives), making the bond market more resilient and attractive to foreign investors. ₹100 crore incentive for large muni bonds FM proposes a ₹100 crore incentive for a single municipal bond issuance exceeding ₹1,000 crore, while continuing the existing AMRIT incentive scheme for smaller/medium issuances (up to ₹100 crore).

Sectors likely to be impacted: Municipal finance, Bond market, Urban infrastructure, Construction & engineering, Public sector finance/NBFCs. 

In India, this could help close the long-term credit gap, boost economic growth toward "Viksit Bharat" goals, and reduce reliance on bank lending. 

Read More

NRI investments become more attractive.

Finance Minister Nirmala Sitharaman on Sunday announced a proposal to double the individual shareholding limit for persons resident outside India (PROI) from 5 per cent to 10 per cent, and raise the combined ceiling from 10 per cent to 24 per cent, alongside opening a direct equity investment route for overseas individuals through the Portfolio Investment Scheme (PIS)

📌 Current Regulatory Framework

Under existing foreign investment rules (Foreign Exchange Management Act / RBI/SEBI framework):

• An individual Non-Resident Indian (NRI) or PIO is allowed to invest in equity of an Indian listed company up to 5% of the company’s paid-up capital.
• The aggregate holding by all NRIs/PIOs together is capped at 10% of the paid-up capital of that company.

• This essentially doubles the permissible individual stake that a PIO (and, under the proposal, all foreign individuals) can hold directly in Indian listed companies.
• At the same time, the overall cap for combined holdings of all overseas individuals could be raised (e.g., from 10% to 24%) — though that broader combined limit is part of the wider reform discussions rather than the specific PIO cap itself.

📌 Why This Proposal is Significant

1. Attracting Capital Inflows

• India has experienced periods of capital outflows from equity markets in recent times, and broadening investor eligibility while increasing caps is aimed at making Indian equities more attractive to global individual investors.

2. Levelling the Playing Field

• The proposal would extend benefits previously available mainly to NRIs/PIOs to a wider class of foreign individual investors, encouraging diverse global participation in Indian markets.

3. Potential Corporate Governance/Coverage Effects

• Higher individual stakes by foreign investors might enhance liquidity and market depth, but also raise monitoring and regulatory compliance considerations (e.g., ensuring that combined beneficial holdings don’t inadvertently breach thresholds that trigger open-offer requirements).

Conclusion:

It's good that India acknowledges the value of investments and the limitations of NRIs. It's high time to keep the global political situation in mind to open the gates for NRIs to invest. The NRIs’ investments now plays pivotal role for the financial advisors, and it's an opportunity to grow.

Read More

Why Mid-Caps and Small-Caps Stand to Gain the Most from the EU-India Deal?

Big thanks to Donald Trump; without his efforts, this deal would have happened. He deserves a Nobel Prize for this deal with India.  His threats brought enemies to friendship.

Investors are clueless, and brokers in the market are not happy with the deal. They expected a huge spike in the market. Well, instant gratification has now got into market returns too. Many are thinking that these deals will take time to materialise into profitability. But what we are failing to understand is that in every step, industrial consumption and service demand grow in India. The India–EU FTA integrates a 1.9+ billion consumer market, covers ~25% of global GDP, and delivers the largest tariff liberalisation India has ever offered to a trade partner.

The India–EU FTA is not a one-quarter story. It is a decade-long structural tailwind that strengthens India’s export ecosystem, enhances global competitiveness, and accelerates scale-up for companies. This deal opens up the gate for the struggling demand creation opportunity that India was facing for long, and the same was felt harder by Midcap and small-cap companies and stocks.

The long term story of Midcap and small-cap stock picks has become stable based on the demand creation opportunity. At the same time, Indian manufacturers are open to getting challenges to improve investments in their own sectors, which they were not doing till today. Many Indian companies across sectors will not be compelled to come out of their comfort zone and have to invest rather than just being dependent on government capex, subsidies, and tax rebates.

Profitability Boost for Midcap and Small Cap Through the Deal

Mid-cap manufacturers and MSMEs are particularly well positioned to capitalise on this shift. Compared to large corporates, they tend to be more agile, faster in execution, and more willing to recalibrate product mixes and processes to meet European requirements. As export orders scale, incremental volumes flow through largely fixed cost structures, driving operating leverage. Higher throughput improves asset turns, while better pricing power and efficiency support margin expansion. Over time, this combination translates into sustained improvements in return on capital employed (ROCE), a critical determinant of long-term valuation re-rating for mid-sized industrial companies. Its huge boon for the segment in the long term.

 Midcap and small-cap stocks, often more nimble and export-oriented than large-caps, stand to gain disproportionately from enhanced EU market access. These companies, many in labour-intensive or niche manufacturing, can scale up production, improve margins via lower duties, and capture higher-value European demand. Market sentiment post-announcement has shown optimism in export-linked themes, with broader indices rising and mid/smallcap indices gaining around 0.8% in initial reactions (despite some sector-specific pressures like autos from reciprocal concessions).

The Free Trade Agreement (FTA) fundamentally alters the opportunity set for Indian enterprises by creating a direct and durable pipeline to high-value European consumers. . With tariff certainty and clearer market access, firms are incentivised to commit capital with greater confidence, accelerating capacity expansion, investing in technology upgrades, and undertaking compliance-driven modernisation across ESG standards, quality systems, and traceability frameworks. These investments are not merely defensive; they enhance long-term competitiveness and embed Indian manufacturers deeper into global value chains. The agreement unlocks predictable access across 144 European Union sub-sectors, providing clarity and continuity that services firms have historically lacked. IT services and digital platforms gain easier cross-border delivery and client acquisition, while engineering and design services benefit from closer integration with European manufacturing and infrastructure ecosystems.

For mid-sized IT and professional services firms, this diversification reduces dependence on any single geography and smooths revenue cycles. Greater predictability improves order books, enhances cash flow visibility, and lowers earnings volatility.

 In aggregate, the FTA acts not just as a trade enabler but as a catalyst for structural upgrading—pushing Indian mid-caps and MSMEs toward higher productivity, stronger returns, and more resilient growth trajectories.

Export orders are materialising, capacity utilisation is improving, and FTA-led earnings upgrades are emerging across midcap and small-cap companies.

For mid-caps and small-caps, tariff elimination often determines whether they can enter a market at all.

• Zero-duty access levels the playing field against entrenched EU suppliers
• Price competitiveness improves immediately without sacrificing margins
• Smaller firms can now bid for EU contracts previously out of reach

This is particularly powerful for engineering goods, auto ancillaries, industrial components, speciality chemicals, and textiles, where India already has cost and capability advantages.

Furthermore,r the FTA includes assured post-study visa frameworks of at least 9 months, improving talent mobility and skill circulation.

This supports:

• Knowledge transfer back to Indian firms
• Creation of EU-facing delivery teams
• Higher value-added services exports

Small and mid-cap firms often struggle with global talent access—this agreement reduces that friction materially.

A unique feature of the agreement is access for Indian traditional medicine practitioners under home-country titles.

This opens niche, high-margin opportunities in:

• Ayurveda and wellness products
• Herbal formulations
• Natural healthcare exports

Many of these businesses sit squarely in the small-cap and emerging mid-cap universe, where IP, branding, and early-mover advantage can compound over time.

Why Markets Will Reprice This Slowly? They undervalue structural shifts that take time to translate into order books, capacity additions, and margin expansion. The economic benefits do not appear instantly in quarterly numbers. Instead, they emerge sequentially—first through inquiry pipelines and export wins, then through rising capacity utilisation, and finally through sustained earnings upgrades.

Until this progression becomes evident in reported results, markets tend to remain sceptical or indifferent. Hence, it's time to invest in midcaps and small caps, since there is a catch here that many of us will ignore. There are many midcap and small-cap companies that are positioned well to take advantage of the gains from this trade deal from day 1 going forward. That’s the hidden gem where the growth will reflect. It's time to invest and create a portfolio that creates long-term wealth from small-cap and mid-cap investments, but don’t be impatient. This will accelerate GDP investments and gross capital formation for India and will uplift the per capita income of India in the coming years.  Further, stay tuned for the Budget session, which begins tomorrow. 

Read More

Not All Mid & Small Cap Investors Think Alike — Two Types That Destroy Returns

Last week, a strong debate happened between Mr Sharma and Mr Khanna on mid-cap and small-cap valuations. As per Mr Sharma, investors are often hesitant to consider mid-cap and small-cap investments when approached by a financial advisor.  To them, the valuations are high, and the growth outlook is negligible and more downward trend. 

There is physiological reasoning behind the same due to which clients are reacting. Furthermore, the price of Gold and Silver has created more issues regarding the investment decisions made at the family level. Whereas Mr Khanna has a strong point on the high valuations of midcap and small cap currently, and hence not a conducive market to invest.

Mr Sharma jumped on this point, and his opinion was that what valuations are we highlighting? Are we speaking about price-based valuation or price correction valuation, or are we speaking about those stocks where prices are still stuck from the highs of September 2024?  

On what basis have the valuations been derived that the whole space of midcap and small cap is expensive?  The real physiological point of expensive derived from a different segment of the client investments.  The midcap and small-cap stocks are indeed overvalued, but for two types of clients whom we follow blindly, just like a herd mentality, 1) Traders, 2) who have old stocks and are unable or were not able to dilute.

Investors are saddled with a long list of non-performing stocks accumulated from 2020 to September 2024. Further, they waited for more than 1 year to recover, but unfortunately, in many of the stocks, the same did not materialise. For those traders, it is obviously overvalued, where, based on the influence of financial advisors, they have asked their clients to invest in worthless companies based on the euphoria of the rally.

In many clients, it has been found that the frustration has gone up significantly since the stocks that they are holding are not moving post correction, whereas someone has got significant rally post September 2024 correction.  This has taken a further toll on the client's mind.

Under these circumstances, you, as a financial advisor, will not only find it hard to convince a client to invest in midcap and small-cap stocks but also in equities. Those who are 1^st time brave investors in equity before the correction of Sept 2024 will find it more difficult to convince.

When we derive the number of midcap and small-cap valuations on different parameters, we find:

1) Interest Coverage Ratio (ICR) measures a company's ability to pay interest on its debt from operating earnings, calculated as EBIT divided by interest expense.

 

 2) Debt to Equity Ratio: Midcap and small cap companies in India maintain moderate Debt-to-Equity (D/E) ratios currently, averaging 0.4-0.7 for midcaps and 0.6-1.0 for small caps as of early 2026, reflecting deleveraging trends post-pandemic [ from prior]. These levels indicate improved financial stability compared to peaks above 1.2 a decade ago

 

 3)     Market Capitalisation growth:10-Year Growth Trends

Over the past decade, midcap market cap surged from ~₹10 lakh crore in 2016 to current levels, a 4-5x rise fueled by multibagger rallies and index inclusions [ from prior]. Small caps expanded similarly from ₹5-7 lakh crore, though with higher volatility—peaking in 2024 before 2025's 7-10% drop

4)     ROCE-Midcap companies in India currently average Return on Capital Employed (ROCE) around 15-20%, outperforming small caps at 12-18% as of early 2026, reflecting efficient capital use amid economic recovery. 

Hence, the above parameters of valuation make it very clear that Midcap and small cap is at the right time for investing. The overvaluation hype is more of those two categories of investors, as mentioned earlier.

For a dealer in stock broking, it is difficult to generate revenue when the broader market rally is missing. Most importantly, there is a difference between a financial advisor and broker/dealer of equities.  In many places, investors have mingled both of them, which leads to a lack of clarity on the valuation perspective.

It’s agreed that the global economy is shifting, and hence the return expectation will change at the same time; one will have to follow the words of the financial advisor rather than just following what the market says.

Midcap and small cap will have a golden period going ahead since the current trade war has opened many doors that were closed for more than a decade. The trade agreements with new countries, including India, will play a pivotal role for mid-cap and small-cap companies.

The cost of borrowing has come down due to RBI policy actions, and a further rate cut would help the midcap and small caps. If we look at the borrowing cost, we find that Indian banks are having healthy position and not much borrowing growth has been witnessed in the last couple of years.

The debt-to-equity ratio of midcap and small is significantly low as compared to the historical levels. If we look at the cash flows of midcap and small cap, we don’t get any negative markings or threats.

The market is an opportunity for creating wealth and not short-term gains. From 2020 to 2024, investors have made short-term profits where money has doubled. Those days are gone.  Every index will have companies where there is a wide disparity of valuations; at the same time, you will get reasonable valuation companies.

Conclusion:

From 2020 to September 2024, every fund manager in the mutual fund industry has performed as the market rally was broader, but now the real test begins in stock picking and sector picking ability of the CIO and Fund managers.  Hence, the last 5 years' returns will not help investment decisions from here onwards.  Don’t trust blindly on over valuation herd mentality. There are many pockets where valuations are attractive, and the quarterly results are also very strong. The midcap and small-cap space has resurrected and is poised for huge growth for wealth creation, and not for short-term traders. Those who are looking for wealth creation for the next 5 years or above, this is the best time to invest in midcap and small-cap stocks.  

The upcoming trade agreements with India will bring a huge rally for the midcap and small-cap stocks across sectors.  The reason is that every deal with a different country will bring cumulative growth opportunities for every company.  Those who are strong supporters of Large cap well, they have started treating large-cap stocks just like bank FDs. Bank FD’s failed to beat inflation for a generation of investors. Now the large cap is being treated in the same fashion. Large-cap stocks will not grow as much as midcap and small cap who will change their buckets in the next 10 years. It's time for midcap and small-cap.

Read More