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.

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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?

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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.

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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. 

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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.

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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. 

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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.

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Its beyond Minerals in Greenland

 

Trump is late and is under immense pressure to get hold of Greenland. It’s not a cold war as it looks now. Its an incomplete work left by Trump since 2019 during his 1^st term. In 2019, under the first Trump administration, the United States signed a memorandum of understanding (MOU) with Greenland to jointly survey the region and exchange scientific and technical knowledge to develop rare earth and critical mineral resources. However, the MOU is now nearing expiration, and hence the whole story gets unfolded.

 Capital has been waiting since 2019 for regulatory clarity and geopolitical alignment. Contrary to popular belief, this is not a US-versus-China binary story. European companies have been deeply involved—and, arguably, have unintentionally helped China gain strategic access to Greenland’s mineral wealth.

List of companies from the EU and China that have taken key exposure inthe  assets of Greenland:

Danish-French consortium (Jean Boulle Group, Danish/Greenlandic funds) secured a 30-year permit for anorthosite extraction, vital for aluminium and glass fibre, highlighting European strategic resource acquisition.

Bluejay Mining's Dundas ilmenite project (titanium/zirconium), with plans for EU financial backing

Molymet, based in Belgium/Chile,  has signed agreements with Greenland Resources

Now the U.S. wants the EU to be dependent on rare earth materials, just like for defence, and that is where the aggression comes ahead. The EU was silently getting closer to China and reducing its dependency onthe  U.S.

At the centre of global attention are Greenland’s two most significant rare earth deposits: Kvanefjeld and Tanbreez.

The United States has actively intervened in the Tanbreez project. US officials lobbied extensively to prevent its sale to Chinese buyers. Ultimately, Tanbreez Mining sold the deposit to New York–based Critical Metals Corp, reportedly at a lower valuation than previous Chinese offers. Though Tanbreez is still in early development—having completed its preliminary economic assessment only in 2025—it is potentially the world’s largest rare earth deposit, with an estimated 28.2 million metric tons of resources. Notably, over 27% of its composition consists of heavy rare earths, which are far more strategic and scarce.

Kvanefjeld, however, tells a different story. It remains under Chinese influence. Shenghe Resources, one of China’s largest rare earth companies, is the second-largest shareholder. Shenghe signed an MoU in 2018 to lead processing and global marketing from the site. Kvanefjeld is the third-largest known land-based rare earth deposit globally, containing more than 11 million metric tons of reserves and resources, including approximately 370,000 metric tons of heavy rare earths.

China has tried many times to acquire assets of Greenland, like airports, rail route localised one and tried many times to doa  lot of activities like scientific research expeditions, infrastructure investments, and natural resource acquisitions. But it failed miserably every time.

Greenland is rich in natural resources, including iron ore, graphite, tungsten, palladium, vanadium, zinc, gold, uranium, copper, and oil.  The most important part is that EU have been helping china for so long indirectly that is gave them access to its rare earth components. Well EU cant shrug of the blame from their shoulder.

Critical Metals, which is developing one of the world’s largest rare earth assets in southern Greenland,

China has repeatedly attempted to establish a foothold in Greenland—not just through mining, but also via infrastructure investments, airport construction proposals, localised rail routes, and scientific research expeditions. While many of these efforts failed due to political pushback, China succeeded where it mattered most: strategic mineral access.

Beyond rare earths, Greenland is extraordinarily resource-rich, with deposits of iron ore, graphite, tungsten, palladium, vanadium, zinc, gold, uranium, copper, and oil. Control over these resources is inseparable from broader Arctic geopolitics.

As Arctic ice caps melt, new maritime corridors are emerging. The Northwest Passage—running through Canada’s Arctic Archipelago—could soon become navigable every summer. This route would connect East Asia and Western Europe via a path nearly 7,000 kilometres shorter than the Panama Canal route. Whoever controls Arctic waters will control future global trade flows, logistics, and security frameworks. This is a major issue next to the rare earth material issue. The U.S. will be cut off soon by the EU and will get disconnected from the rest of the world leaders. Transportation plays a critical role in geopolitical aspects.

Rare earth elements themselves are not geologically rare. But their strategic importance is immense. These 17 metals—including neodymium, terbium, and dysprosium—are indispensable for smartphones, EVs, wind turbines, missile guidance systems, and advanced fighter jets like the F-35. Control over their supply chains equates to control over the future of technology, energy transition, and military power.

Impact on the market and Geo-Political

More tariff wars, more geopolitical aggressions and a private equity investment war will begin. Metal prices will go up, and even if gold crosses $5000 ounce mar,k don’t get surprised. Every force on earth will look to stop Trump, and he is not going away so easily. Equity markets will remain volatile, allowing investing for the long term. One can treat the current phase like a slowdown in terms of equity valuations. Coming to gold and silver, well, they are going to be short-lived and might remain stagnant for a longer term once the dust settles down. We have witnessed a similar thing when silver prices jumped to 75k during 201,3 and post that it remained slow to recover post correction.

Invest in gold and silver through ETFs, but don’t kill asset allocation models since equities cannot be ignored over the long term. The current market offers the STP mode of investments, where the client has frequent panic attacks. Midcap and small-cap funds should be looked into for long-term wealth creation, irrespective of the risk profile of the client, since every disruption creates opportunities. The new opportunities that are envisaged now are the trade deals with India and other countries, excluding the U.S.-India trade deal. India will gain significantly through the new trade deals and will create opportunities for midcaps and small caps. Leave financial planning responsibility with your financial advisor and don’t try to buy medicines using old prescriptions, since every day the dynamics of the market are changing, patience and focus are highly required.

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FII's will not come back to India

Budget expectation remains always high, and starting from allocation to different sectors, to relief in individual taxation through some new rules and regulations. But this time the focus and expectation are different. The focus is more on key factors like what will be the borrowings for the new financial year and how the fiscal deficit stands going ahead. Further every trader will have an eye on key announcements to get support for the trade war issues. Among all these piles of expectation,s the biggest one will be the LTG -long-term capital gain. This has impacted everyone in the country and out of the country.

Today, Foreign Institutional Investors (FIIs) hold less than 17% of Indian equities, an all-time low. Since the reintroduction of Long-Term Capital Gains (LTCG) tax and the revision of Short-Term Capital Gains (STCG) in 2018, FIIs have cumulatively sold over ₹10 lakh crore worth of Indian equities. On one side, we have reduced the dependency on FII’s inflow and have become more towards DII’s investments.  But the biggest question is, are we going to absorb more decline for FII’s holding in the Indian equity market? In simple terms,s are we ready for more sale off my FII’s?

The Ministry of Finance must understand that the capital market is not a revenue creation model but a wealth creation partner.  It cannot be compared to the consumption market, where GST makes a significant revenue for the government. The capital market needs different treatment to look towards its growth.

From an FII’s perspective, India today offers less than 5% net dollar returns, while dividends are effectively double-taxed—first at the corporate level and again at the investor level. In risk-adjusted terms, there is no longer a compelling incentive for foreign capital to remain invested.

Are we becoming more optimistic that the Mutual Fund industry's growing SIP book will attract more inflows and will set off against the FII’s exit? Well, those who are under this assumption, retail money is sticky only when the music is good and full of melody. We have seen previously that retail is more scared to invest and even the stop sip when the markets are low and they even redeem their holding in expectation of further sell-off by FII’s.

In 2008, FIIs sold roughly ₹1 lakh crore, and domestic institutions were too small to counterbalance them. The result was a nearly 60% collapse in the Sensex and Nifty.

Over the past 7–8 years, FIIs have sold nearly ten times that amount. The counterbalance was by DII’s but how long?

India trades at a premium to most emerging markets because it has earned a reputation for capital stability. If equity prices begin reacting violently to every US Fed move or global risk event, India will be reclassified. We all know that private capex has been a major missing part, and it’s only the government that is spending.  Earnings are coming very slowly compared to previous times.

 Even the domestic investors are scared to redeem their old holdings of mutual funds and equities since they must pay 12.5% tax as capital gain. This has created a huge problem for the rebalancing of portfolios.  We all know that without rebalancing, one cannot create wealth. No,w where certain mutual fund schemes are not performing and the client wants to exit those, they don’t have the guts to do the same since 12.5% tax needs to be paid. The same is applicable for stocks, particularly post September 2024, the way the market has fallen, investors are saddled with nonperforming stocks but can’t exit since they have to pay capital gain tax. As I said earlier, the capital market cannot be treated as a revenue model just like the consumption market.

On the other hand consumption story is a hoax since borrowings are going up and savings rates are coming down. If we face any slowdown, the whole ecosystem will get stuck, and NPA ratios will start climbing up. Household portfolios would be underwater, discretionary spending would slow, which would lead to GDP growth to deaccelerate which will finally transform into a further fall of the equity market. LTG plays a pivotal role for the Indian economy and globally too.  If we are unable to make it attractive, some other country will make it more lucrative to attract FII’s inflow. Indians still have an exemption limit of 1.25 lakhs, whereas FII’s don’t have anything as such. Tell me why FII’s will invest in India?

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A 10% Credit Card Rate Cap: How a “Pro-Consumer” Policy Could Trigger a Banking Shock in 2026

Mr Donald has created a Herculean task for the new U.S President who will be coming in the next 3 years. Trust is broken, promises are broken, and most importantly, you are under the rule of a gangster type world. 3^rd world War probability or predictions of a third world war have gone up post the Venezuela matter. The recent announcement for the benefit of the mid-term elections for Mr Trump will create another recipe for a global financial crisis in the coming years.

Trade Wars and the Silent Collapse of Purchasing Power. The purchasing power chart of the U.S. dollar tells this story clearly. Major declines have coincided not just with monetary expansion, but with periods of policy-driven inefficiency and fiscal strain. A renewed trade war risks repeating this pattern. As tariffs proliferate and global trade fragments, inflationary pressures rise while growth weakens, a combination that steadily erodes real incomes. Now, Mr. Trump injects another steroid, which will create demand for more steroids in the coming years.

The proposal to impose a one-year cap of 10% on credit card interest rates in the United States is a case in point. While politically appealing and superficially pro-consumer, such a measure risks undermining the very foundations of modern banking, with spillover effects that could extend well beyond U.S. borders and into global currency markets, including the Indian rupee. 

The repercussions would not stop at U.S. borders. For emerging markets, including India, a weakening dollar coupled with rising global risk aversion presents a complex challenge. The dollar’s purchasing power has already been structurally eroded over the past few decades, with a notable decline even in recent years.

Credit card lending sits at the riskiest end of the consumer finance spectrum. It is unsecured, highly cyclical, and disproportionately exposed to income shocks. Interest rates in the 20–30% range are not arbitrary or exploitative by design; they represent the economic price of elevated default risk, fraud losses, regulatory capital requirements, and the rising cost of funds in a tightening monetary environment.

When inflation erodes household purchasing power and delinquencies rise, lenders must either price that risk appropriately or withdraw credit altogether. A statutory cap at 10% does not eliminate these risks—it merely prevents banks from acknowledging them in pricing.

Faced with such constraints, banks would respond in the only rational way available to them: by restricting credit supply. Rather than extending unsecured credit at a loss, lenders would tighten approval standards, reduce credit limits, and shift costs into fees and penalties.

The borrowers most affected would be those at the margin—precisely the households the policy is intended to protect. Over time, this contraction in revolving credit would suppress consumer spending, which remains the backbone of the U.S. economy.

As spending slows, corporate revenues weaken, employment conditions soften, and income insecurity rises, leading to higher delinquencies not only on credit cards but across auto loans, personal loans, and even mortgages.

Spillover to INR and Emerging Market Currencies

For India and other emerging markets, the effects are complex and asymmetric.

Short-Term:

• A weaker dollar may temporarily support INR stability
• Capital flows into EM debt and equities could increase

Medium-Term (More Dangerous):

• Global risk aversion rises if U.S. banks wobble
• FIIs retreat to safety despite lower U.S. yields
• Commodity volatility increases, impacting import inflation

For India specifically:

• Imported inflation risk rises
• RBI policy flexibility narrows
• Currency management becomes harder, not easier

In short, U.S. credit stress does not stay local.

 How “Good Intentions” Become Credit Events

Capping credit card rates at 10% does not eliminate consumer stress. It redistributes it, from borrowers to banks, and then back to the economy at large.

The likely sequence is clear:

• Credit contraction
• Small bank stress
• Consumption slowdown
• Rising delinquencies
• Currency volatility
• Global spillovers

This is how a headline-friendly idea becomes a catalyst for systemic risk. Credit systems do not fail because risk exists; they fail when risk is ignored, suppressed, or misallocated. 

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Indian FOMO of Debt - Consumption Boom Fiasco

 

The data is hidden, and the media keeps manipulating the data to hide the truth behind the Indian household debt pile. The data is not restricted to what the newspapers write, but when one di.gs harder into the facts, it's more shocking rather than to be taken lightly.

 Your loans were good, and now they're about to turn bad. This line is slowly becoming applicable for all those people where the threat of job loss is slowly getting into their nerves. The Indian consumption market is currently witnessing a golden phase, but it seems short-lived.  Taking a personal loan and investing in the equity market is a trend that cannot be gauged by the RBI or by any other. It's one of the most risky recipes for a total collapse of an economy.  We know within our friends and families who are doing these types of things.

The Indian consumption boom has been stupendous. Right from the time of the Festive season of 2025 to the 1^st of January celebration, the consumption boom is well reflected in every corner. Falling interest rates and a nil tax liability up to a salary of Rs 12 lakh are a major boost for the consumption boom. A lot of AMCs came up and garnered significant money into the consumption theme Funds. People are in spending mode and enjoying the GDP growth of the Indian economy, which is hovering around 7.5% to 8.2%. But every borrowing is not for consumption only. 

This era of consumption and borrowing is different when compared with the last 10 or 15 years. The aspirations of life are significantly different, which leads to this consumption boom. It’s a generational gap that comes into play behind the curtains of Indian consumption growth. Debt is piled up, and savings are collapsing, and the risks also increase when personal loans get into the equity market, which is very hard to figure out.

But how strong is this consumption boom, and is the whole source of funding from personal savings or from borrowed capital? Unsecured loans and personal loan numbers are the most risky segment, which will impact the Indian economy may to be now but sooner than later.

Household debt rose to 41.3% of GDP by the end of March 2025, well above the five-year average of 38.3%. More tellingly, the composition of borrowing is shifting—non-housing retail loans, largely consumption-led, now account for over 55% of total household debt (as of September 2025). The break-up is more threatening:

Personal loans are growing ~35% YoY overall, driven by smaller-ticket, short-term loans (up 77% YoY in some platforms) and digital lending.

Outstanding volumes reached ~₹13.7 lakh crore in H1 FY2025, with market projections to ₹4.3 lakh crore by end-2025 in certain segments.

H1 FY2025: ~11% YoY for unsecured personal loans; credit cards ~18% YoY.

Fintech-driven unsecured lending: Robust at 36.1% growth (Sep 2024–Sep 2025), with personal loans forming >50% of fintech portfolios. 

Overall retail credit: Grew ~17% in 2025 to ₹144 lakh crore outstanding.

Non-Housing Retail Loans (predominantly unsecured/consumption-oriented): Share rose to 55.3% of total household borrowings by Sep 2025 (up steadily over the years), outpacing housing (28.6%) and productive loans (16.1%). Personal loans specifically accounted for 22.3% of consumption-purpose loans.

The pile of debt did not happen in one go. The historical trend has been different.

Key Trend Data Points (Household Debt as % of GDP):

• 2015: 26–32%
• 2018–2020: 35–37%.
• 2021: 36.6%.
• 2023: 40%.
• 2024 (end): 41.9–42%.
• March 2025: 41.3% (RBI Financial Stability Report).

Loans for education, housing, or small businesses build future assets. But loans for consumption create no productive capacity. A growing number of households are using credit to pay for everyday expenses, such as groceries, utility bills, school fees, etc are only liabilities being paid off. 

The point is that as long as there are not many job cuts and global uncertainty, which brings down the flow of capital within the economy might be a major issue for the borrowers. On the other hand, falling savings rates are good as long as the same is being deployed in equity and commodity assets and not 100% into the consumption segment. But we find a different pattern where savings are depleting.

Key Trend Data Points:

• Household Gross Savings Rate (% of GDP):
• 2000–2011 average: ~22.9%.
• 2012–2023 average: ~18.4%.
• Recent years: Declined further amid post-pandemic shifts.

• Net Household Financial Savings (% of GDP) (gross financial savings minus liabilities/borrowing; a key indicator of funds available for investment):
• Pre-pandemic (2011–2019 average): ~7–8%.
• FY2021 (COVID peak): ~11% (precautionary surge).
• FY2023: 5–5.3% (near 50-year low).
• FY2024: 5.2–5.3%.
• FY2025 (Q4/Q1 data): Recovery to ~7.6%, supported by rising financial assets and stabilising liabilities.

• Gross Financial Savings (% of GDP): 10.9–11.7% in recent years (FY2023–2024), with deposits, insurance/pension funds dominating (69% of household financial wealth).

RBI cushion for the risk profile of borrowers is under the safe zone is a myth since the profile can change at any point in time.  A scenario like 2008 or slow GDP growth from 2011 to 2013 might be a major hiccup for the borrowers. Even a COVID-like situation might turn the tables upside down. Big billion-day sale offers have turned our homes into a storage house where we have stacked up things that we don’t even need. 

Further, it’s a fool's paradise to compare China and other countries with to GDP ratio of India. The Indian economy cannot be compared to these countries due to multifactor differentials.

The risk of borrowing is endless, and until the same is deployed in quality assets for asset generation, the same stands as a liability that will create havoc during uncertain times. Further, the borrowers' stability is a major issue and threat.

But why are such loans increasing?  The reason is that rural wage growth is slack, and urban segment growth is stagnant. The changes in NREGA lead to a significant dependency on loans as the penetration of smartphones increases the aspiration of life.

Some of this also reflects a shift in credit culture. The aggregate savings rate is down from a peak of 36% to about 30% of the GDP.

The borrower’s classification is also playing a pivotal role, where younger, salaried consumers are borrowing heavily against future income to sustain present lifestyles. At the same time, lower-income and rural households, facing stagnant earnings, are turning to gold and small personal loans to manage the essentials of their life.

The temptation of buying and the FOMO factor in consumption behaviour has created a major issue within society. This is reflected in the consumption boom based on borrowed capital and declining savings rates. It's high time to take cognisance of the same and change our behavioural pattern.

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