Sept 24th 2026 will be Remembered -SEBI new rules Transform Indian capital market opportunities

Taken together, these measures point towards a capital market that is becoming broader in product choice, more flexible for intermediaries, more accessible to sophisticated investors and more structured in investor protection.

1. Portfolio Management Services (PMS) Overhaul

• New Regulations: The Portfolio Managers Regulations, 2026 replace the 2020 framework.
• Asset Allocation Flexibility: Discretionary PMS can invest in IPOs, primary debt, specified foreign securities, and up to 10% of client AUM in eligible unlisted investment-grade debt (with client consent).
• Derivatives Limit: Exchange-traded derivatives allowed up to 1.25× client AUM.
• PRIM Route: Introduced the Portfolio Managers Route for Investing in Mutual Fund units (PRIM), allowing investments in direct MF plans, ETFs, index funds, and Specialized Investment Funds (SIFs) with a minimum ticket size of ₹25 lakh.
• Governance: Introduced an Independent Fund Manager (IFM) framework alongside simplified compliance requirements.

2. Accredited Investor (AI) Framework Easing

• Manager-Led Accreditation: AIF managers, AMCs offering SIFs, and PMS providers can now conduct manager-led accreditation.
• New Exposure Criteria: Securities-market exposure criteria fixed at ₹5 crore for individuals/HUFs/family trusts/sole proprietors, and ₹20 crore for body corporates/trusts.
• Deemed Accreditation: Non-residents and FPIs are deemed Accredited Investors. Accreditation validity extended to 3 years.

3. Uniform Asset Protection Across AIF Structures

• Standardized asset ring-fencing rules across all legal structures (Trusts, LLPs, Companies, and Body Corporates).
• Explicitly prohibits using fund assets to cover losses, damages, or operational expenses belonging to the fund manager.

4. Common Advertisement Code

• Replaces fragmented marketing rules with a single Advertisement Code across MFs/AMCs, PMS, Investment Advisers, and Research Analysts.
• Celebrity Endorsements: Permitted strictly for entity/brand-level promotion with prior regulatory approval and safeguards.
• Approval & Reporting: Prior ad approval eliminated for general ads; mandatory reporting within 3 working days required.
• Clear Categorization: Explicitly separates formal advertisements from routine client communications.

5. Formula-Based Settlement Mechanism

• Standardized, formulaic calculation for settlement amounts based on case severity, regulatory precedent, and aggravating/mitigating factors.
• Offers extended application windows, fast-track routing for minor cases, and a platform to resolve long-pending enforcement actions.

6. Call Recording Relief for Research Analysts

• Removed the mandatory requirement for Research Analysts to maintain call recordings of conversations with institutional clients.

7. Expansion of Vault Manager Regulations

• Broadened the scope of Vault Manager rules beyond Gold Exchange Receipts (EGRs) to cover gold/silver ETFs and bullion derivatives.
• Net worth requirement for Vault Managers increased from ₹50 crore to ₹75 crore, alongside enhanced security protocols.

8. FPI Participation in Commodity Derivatives

• Allowed Foreign Portfolio Investors (FPIs) access to additional non-agricultural commodity derivatives, subject to strict cash-settlement/non-physical delivery conditions.

9. Structural & Voting Flexibility for REITs / InvITs

• GIFT City Issuances: REITs and InvITs can issue Depository Receipts in IFSC/GIFT City to access foreign capital.
• Voting Thresholds: Eased voting requirements by changing the decision threshold from 75% of total unitholders to 75% of votes cast.

10. Non-Convertible Debenture (NCD) Listing Rules Eased

• First-time NCD issuers are now required to list only future debt issuances, removing the requirement to retrospectively list existing unlisted NCDs.

11. Relaxation of Professional Certification Norms

• Modified timing guidelines for age and experience-based qualification exemptions.
• Expanded recognition of alternative industry courses and specified certification programs.

12. Settlement Scheme for Illiquid Stock Options (ISO)

• Launched a 4th one-time settlement scheme targeting pending enforcement cases related to non-genuine trades in BSE’s illiquid stock-options segment (April 2014 – September 2015), offering fixed settlement amounts based on contract volume.

SEBI's 24 September 2026 reforms could mark an important step in India's transition from a predominantly product-led savings market towards a deeper, more flexible and increasingly sophisticated capital-market ecosystem—one capable of connecting a much larger pool of Indian and global capital with India's long-term growth story.

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How can we believe Nifty will make new highs in FY-27?

 

Do you think Nifty will touch new highs in FY-27? How could that be possible when the global situation is tough for India? Do you think large caps will grow, or midcaps and small caps? Well, the numbers expectation is tough to think about and believe, but we have tried our best to figure out the rationale of the market to make new highs despite all the odds.

The last 7 months have been a big learning experience for the market and for the investors.  There was a time when India was being flooded with pessimism and was often compared with the Korean’s and Taiwanese stock markets and FII inflows. Investors were focusing on global investment products, and there was an euphoria for GIFT City products.  Indians were treating Indian markets as much inferior and foreign markets as much superior. Investors were spending here but were betting on AI stocks and overseas markets where they had limited knowledge. The craziness of investors discounting Indian markets' long-term growth and taking bets for short-term gains in foreign markets turned sour very soon. It's important to know what is turning on and how the Indian markets are going from slow earnings to stable earnings despite global factors.

The INR was one of the factors that kept Indian markets under pressure, but the FCNR turned out to be a big success, and on the same note, we Indians doubted why FII’s or NRIs would invest in FCNR and not in Korea, Taiwan or the S&P 500 and AI stocks. But all these assumptions turned out to be negative for the investors, and now Indian markets are back with strong earnings numbers. In my last article we wrote very clearly that FCNR is a big weapon when the returns are being calculated. Thats why Indian governmnet is now planning to close it one month before the FCNR.https://www.ianalysis.co.in/2026/06/fcnr-generates-21-to-even-27-annually.html

In the last 1 year, from 15^th August 2025 to 15^th August 2026, the index has delivered a negative return of 2% since last year to Independence Day 2026, due to geopolitical uncertainties, foreign capital outflow, and earnings growth-valuation mismatch

Nifty Midcap 150: Q1 FY27 EPS grew about 34% YoY (with over 80% of the index having reported).

Nifty Smallcap 250 / Smallcap 100: Q1 FY27 EPS grew roughly 40% YoY for the Smallcap 250. Small-cap earnings were almost flat in FY25–FY26, setting up a high percentage rebound in FY27.

A record 62.7% of companies that reported losses in Q4 FY26 turned profitable in Q1 FY27, the highest rate in six quarters. The 271 companies generated a combined profit of ₹5,973 crore, compared with a loss of ₹5,505 crore in the previous quarter.

The improvement was supported by lower expenses and higher other income, signalling a broadening recovery in corporate earnings and a positive catalyst for markets.

 What factors will drive markets to new highs?

 The PAT growth of Q1 FY-27 matches the PAT of Q3 FY-24.  Q1 FY27 results already reflect this: midcap and smallcap earnings grew ~23–34% and ~31–40% YoY respectively, well ahead of large caps, indicating operating leverage and mix benefits. This is the place where the turnaround is being noticed for the Indian markets. Analysts remain constructive on mid- and small-cap earnings leadership continuing, supported by domestic demand, selective sector strength (financials, certain industrials/discretionary), and a broadening recovery—though delivery on high expectations is key given valuations

On the 80^th Independence Day, the Indian economy and market are both stable, and the earnings outlook has recovered significantly. The Indian markets will make new highs during or after Diwali but before March 2027.  During this phase, we will complete the 2-year down phase of the market due to the low base of previous years.

We had a healthy monsoon; hence, food inflation will be on the lower side. Industrial inflation has also been controlled and is coming down from the all-time highs of May and June numbers. For example, Fuel & Power: 20.05% YoY (down sharply from 27.41% in June, but still very high).  This adds significant numbers to the PAT.

 After a couple of years of uneven rural and mass-market demand, indicators like two-wheeler sales, FMCG volume growth, and discretionary spending have started to firm up in FY26–FY27.

Permanent resolution around the Strait of Hormuz chokepoint leading Brent crude to stabilise within the $70 --$80/bbl band, directly reducing headline inflation and easing input cost pressures.

FIIs exhibited a clear preference for sectors offering either defensive earnings visibility or attractive valuations. Consumer services, healthcare and consumer durables attracted substantial inflows, reflecting confidence in India’s consumption-driven growth story.

Many companies have already passed through earlier cost increases via price hikes; as raw-material inflation moderates or stabilises, gross margins can expand even if top-line growth is moderate.

Many firms are now operating at higher utilisation, so incremental revenue flows more strongly to profits.

Recent earnings trends

• Q1 FY27:
• Nifty 50 EPS grew roughly 10–11% YoY.
• Midcap 150 EPS grew about 34% YoY.
• Smallcap 250 EPS grew around 40% YoY.

Higher sustainable growth rates and improved ROE profiles justify a higher equilibrium P/E. The above numbers do not account for the broader index rally; hence, even if the numbers might look high, it's not in a risky zone, which leaves a margin of safety and growth.

Conclusion:

The beginning of the festive season was followed by growth in consumption, which will boost operating profits. Spending levels have gone up, and there is no shortage of the same. The broader participation of stocks is still awaited; hence, the market has a high probability of making new highs.   The market is now slowly getting adopted and is neglecting the U.S -Iran war and focusing more on earnings and strategies of growth within the economy. If earnings grow at ~12–15% CAGR over the next few years, the market can absorb current valuations without needing aggressive multiple expansion. Follow your asset allocation and risk-taking ability before investing. It's time to revisit financial planning goals and realign your allocation towards equities.

Most importantly, review your risk taking ablity and if their si any adverse expectation by everyone and hard to believe the market will go up and make new highs, you should consider that while investing. 

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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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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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"2.3x, 3.9x, 4.9x – India’s Incredible Market Multipliers"

Investors are shaky when it comes to investing in mid-cap and small-cap stocks. The prime reason is patience in investing in this segment. Quick returns often become the prime reason for distraction while reaping the long-term gains from the investment portfolio.  In the last 7 years Indian equity market and economy have gone through a sea of changes, where the journey began from the collapse of IL&FS, followed by DHFL & PMC bank, creating a ripple effect of shortage of liquidity for the MSME sector.  The bank's NPA ratio was hovering around 18% during that time, which further exerted pressure on the category of midcap and small-cap stocks. 

Then came the  Yes Bank crisis and the Covid crisis.  But in the span of just five years, India's investible equity universe has undergone a seismic transformation, ballooning from ₹132 lakh crore in June 2020 to ₹387 lakh crore by June 2025—a staggering 3x surge. This growth, fueled by post-COVID recovery, surging domestic retail participation, and structural economic reforms, has reshaped the market cap pyramid. Small caps have outpaced all others with 4.9x expansion, eclipsing the mid-cap bucket of 2020 in size.

 Last 10 years, many companies have moved from the bucket of small-cap to midcap and from midcap to large-cap.  Similarly lot of micro-cap companies became small-cap. Now, this transformation of the bucket is not based solely on valuations but on business transformation and growth. In simple terms, it is not a blind jump of buckets but a genuine one backed by strong fundamentals of business.

🟧 𝐋𝐚𝐫𝐠𝐞 𝐂𝐚𝐩 •₹𝟏𝟎𝟏 𝐥𝐚𝐤𝐡 𝐜𝐫 → ₹𝟐𝟔𝟏 𝐥𝐚𝐤𝐡 𝐜𝐫 (𝟐.𝟑𝐗)

•Top 𝟏𝟎𝟎 𝐜𝐨𝐬 now bigger than ever

•1st Large cap: ₹𝟏𝟕.𝟖 𝐥𝐚𝐤𝐡 𝐜𝐫 (vs ₹𝟖.𝟗 𝐥𝐚𝐤𝐡 𝐜𝐫 in 2020)

 ✅ Upside: Stability, liquidity ⚠️ Risk: Slower compounding ahead

 🟫 𝐌𝐢𝐝 𝐂𝐚𝐩 •₹𝟐𝟏 𝐥𝐚𝐤𝐡 𝐜𝐫 → ₹𝟖𝟐 𝐥𝐚𝐤𝐡 𝐜𝐫 (𝟑.𝟗𝐗)

•150th midcap today = ₹𝟑𝟎,𝟖𝟎𝟎 𝐜𝐫 (vs ₹𝟕,𝟎𝟎𝟎 𝐜𝐫 earlier)

 •Explosion of quality mid-sized leaders

✅ Upside: Growth & leadership shift ⚠️ Risk: Valuation overheating

🟤 𝐒𝐦𝐚𝐥𝐥 𝐂𝐚𝐩 •₹𝟗 𝐥𝐚𝐤𝐡 𝐜𝐫 → ₹𝟒𝟒 𝐥𝐚𝐤𝐡 𝐜𝐫 (𝟒.𝟗𝐗)

•Small cap bucket (2025) > Mid cap bucket (2020)

•250th small cap today = ₹𝟏𝟎,𝟑𝟎𝟎 𝐜𝐫 (vs just ₹𝟏,𝟕𝟎𝟎 𝐜𝐫 in 2020!)

The current phase of the Indian economy is one of the golden phases despite Trump's policy actions. As of October 2025, with the Sensex hovering around 80,983 points, analysts forecast modest 6–10% gains through year-end, emphasising quality over quantity in investments.

 Yet, this boom comes with caveats, elevated valuations, volatility in smaller segments, and global headwinds like U.S. tariffs and geopolitical tensions. This report dissects the data, drivers, and dilemmas, offering actionable insights for investors navigating this dynamic landscape.

 The point is that what we fail to understand is what drives the midcap and small-cap segment. FII’s, Indian Investors, coverage by the analyst or by institutional investors. Well, today the Indian midcap and small cap is researched more by Indian analysts and invested more by Indian Institutional and retail investors.

Being a financial advisor, one might be sceptical about asking clients to invest in midcap and small cap, but the point is, does your scepticism impact clients’ wealth when compared to peers investing in the same market?

Demat accounts skyrocketed from 5 crore (2020) to 19 crore (Jun 2025), with SIP inflows hitting record highs. Retailers funnelled billions into mid/small caps via mutual funds, amplifying breadth.

RBI's liquidity injections, PLI schemes (boosting exports/import substitution), and fiscal prudence (inflation tamed to ~4% by mid-2025) underpinned stability. GDP growth averaged 7–8% annually, outpacing peers.

By 2024, mid/small caps returned 28–31%, dwarfing large caps' 10–13%. But 2025 brought sobriety: Small caps entered a bear market (-18% from Sep 2024 highs), with P/E ratios at 35x (vs. 10-yr avg. 22x). Again, the barometer of the last 10 years is filled with loss of pains, where the last 5 years we have seen dramatic changes post the worst of the former 5-year time frame. This is a major drawback for financial advisors to understand the wrong barometer.

The current valuations of midcap and small-cap stocks are well justified for long-term wealth creation since the growth is married to Indian GDP growth. GST cut down, Nil income tax up to 12lakhs, falling interest rates, all spook the consumption demand market for India. When sales pick up, the demand also picks up, which leads to additional capacity utilisation.  Rural recovery and middle-class expansion (per capita income up 35% from 2014–23). Further, the per capita income also boosts a strong story for the midcap and small-cap segment

• Nominal GDP per Capita: $2,878 (USD, current prices) for calendar year 2025. In INR terms, this equates to approximately ₹2,39,000 at an average exchange rate of ~₹83/USD.
• GDP per Capita (PPP): $12,132 (international dollars), ranking India 125th globally and 35th in Asia—about 47% of the world average.
• Per Capita Net National Income (NNI): ₹205,324 (current prices) for FY 2024-25, up ~8.7% from ₹188,892 in FY 2023-24. At constant (2011-12) prices, it's ₹133,501, indicating real growth of ~3.5%.

These projections factor in 6.5–6.8% real GDP growth for FY 2024-25, stable inflation (~4.5%), and a population growth rate of ~0.8%. India's global rank in nominal per capita GDP is 142nd out of 193 economies, highlighting inequality despite aggregate size.

 When consumption demand (urban + rural, industrial + services) rises faster than supply, companies use up more of their installed capacity. Example:

 India’s Recent Data Points

·        During the 2014–2017 consumption boom, demand pushed CU levels above 80%, prompting new project announcements in cement, auto, and steel.

• 2020 (COVID): CU collapsed to ~60%. GDP fell, no new capex.
• 2021–2023: Recovery + pent-up demand lifted CU back to ~74–75%.
• 2024–2025: With strong consumption (real estate, autos, manufacturing push), CU in many core industries (cement, steel, chemicals, autos) touched 78–80%, crossing the new investment threshold.

Demand-Capex Feedback Loop

• Step 1: Rising demand → higher CU.
• Step 2: CU ≥ 80% → companies plan new capacity (since existing plants can’t meet future demand).
• Step 3: New capacity → fresh investments → boosts GDP, jobs, and disposable income.
• Step 4: Higher incomes → further demand growth.

This is the virtuous cycle India is entering now (2023–2030), very different from the “supply-glut era” of 2010–2015. It's time to look at midcap and small cap investments in a different way and reduce the portfolio's dependency more towards large cap. We know that one generation has suffered huge losses in terms of financial planning simply by making investments in bank FDs and Post Office savings schemes under the myth of capital security.  We are repeating the same with too many bets on large-cap stocks under the same myth of security.

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Before IPO Loss- TATA Capital

 When investments become status quo and not a planned objective based on one’s risk profile, the carnage of loss becomes more painful than financial loss. The bull market of the Indian stock market always created new opportunities for investors to lose money.   Brokers have always made money, but the clients always suffer a loss. The difference between the last 5 years' market rally and the previous 15 to 20 years is that investors have become more of a herd mindset, busy copying others' returns and investment products without understanding risk. The online disclaimer that equity investment is risky and subject to market fluctuations is not enough to make people understand the depth of loss one can face when making investments.

Another instance of investors being fooled or cheated by the astronomical prices of unlisted shares. The unregulated, uncontrolled prices and a proper mechanism of justification of prices lead to a huge loss for the investors who have been accumulating Tata Capital Unlisted shares from brokers under the guise of astronomical returns during the IPO. The speculation of the grey market premium is the cage where all are trapped.

As of late September 2025, Tata Capital's unlisted shares are trading in the range of ₹735 to ₹810 per share (face value ₹10). This reflects a significant decline from earlier peaks:

• 52-week high: ₹1,125 (April 2025)
• 52-week low: ₹765 (recent)

Recent trend: Down ~30-36% from April/June 2025 highs of ₹1,000-₹1,075, influenced by market volatility, a recent rights issue at ₹343 (July 2025), and broader financial sector weakness. Unlisted prices peaked at ₹1,125 in April 2025, implying a potential 64% drop to the IPO band.

  Now, one can relate to who and how much the hit has been for all those retail investors who have been lured by brokers. The IPO drop signals a potential correction for unlisted holders, as seen with HDB Financial Services' recent underwhelming debut. Post-IPO, a 6-month lock-in applies for pre-listing buyers. HDB Financial’s unlisted shares fell ~40% (₹1,200 to ₹740) before its June 2025 IPO, with a listing price of ₹777 (5% premium). Tata Capital mirrors this trend, with unlisted prices already correcting 30–36% since April. In the NSDL IPO (National Securities Depository Limited), unlisted shares traded at a premium pre-listing but plunged 35% on debut, leaving investors furious and highlighting the perils of overpaying in unlisted markets. Broader 2023-2025 trends show ~30% of Indian IPOs listing below issue price, amplifying losses for unlisted holders.

 The biggest question being asked by all those investors who are now trapped with higher prices is What went wrong?

 Well, unlisted shares traded at P/B 8.5–11x, far above listed peers (Bajaj Finance: 5.9x; Shriram Finance: 4x), driven by Tata brand hype and pre-IPO speculation. This valuation gimmick, created by unscrupulous brokers, has created a mess. The brokers have made but not the client. In many cases, there are multiple brokers involved, and it's a chain-like format.

Another question on the mind of the investors is how long it will take to get back to the unlisted prices level compared to the IPO price. Well, no message of condolence to the investors. Based on the analysis and other analytics reports, it is being found that  Tata Capital’s diversified portfolio (88% retail/SME, ₹2.37 lakh crore AUM, 28–37% CAGR) and Tata brand support growth, but high P/E (~113x) and modest ROE (12%) suggest limited near-term upside vs. peers. Further corrections are possible if GMP weakens or the market turns bearish. While unlisted investors face potential losses, IPO applicants may benefit from a lower entry point.

The Indian financial market needs more regulation and investor awareness programmes so that clients are protected.  The problem is that all reputable broking houses, wealth outfits all sold the same asset class at an exorbitant price. Now you can't put all of them into jail and prosecution.  The only way is to develop more rules and accountability regulations for the brokers for such prices when it becomes open to retail people.

Advice for Clients

1. Due Diligence: Vet company financials, management, and sector via platforms. Avoid momentum-driven herd mentality buys.
2. Portfolio Allocation: Limit to 5-10% of net worth; pair with listed assets for balance.
3. Exit Strategy: Monitor IPO filings; sell pre-listing if premiums peak, but factor in taxes (e.g., LTCG at 20% in India).
4. Use SEBI-registered advisors for valuation and lock-in planning.

If one does not understand the risk of investments in these products, like unlisted shares, one should invest only in Mutual funds.  Mutual funds are much safer compared to these unhedged risky investment products.  Always remember that Biriyani is not always good, but Dal-Khichdi is much better for health and for the wallet.

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From Dalal Street to Every Street: The Democratization of Indian Investing

"Why India Is Expensive—And Still Unstoppable" .

Indian markets have become much stronger, and we are least bothered about the trade war and its impact. The Indian equity market has undergone a profound transformation, quietly reshaping the structure of capital flows, investor behaviour, and asset ownership.  The market, which was once used to be heavily influenced by foreign institutional flows, has now become increasingly domestically driven, showcasing resilience, maturity, and a growing depth of participation across segments.  Starting with the India-Pakistan war, to capital market in India has shown tremendous resilience. The traditional belief that FIIs are the primary movers of Indian markets is no longer valid.

The old market rhythm — where Foreign Institutional Investors (FIIs) set the tone — is fading. Over the last four years, net FII investments have totalled just $6 billion, equivalent to merely 2–3 months of SIP inflows. FII ownership in Indian equities has dropped to 17.7%, its lowest since 2013, while Domestic Institutional Investors (DIIs) are now at a record 14.9%. The baton has shifted. This is a remarkable strength of the Indian market, which will only compound in the coming days.

In just five years, PAN-linked MF investors have jumped from 2 Cr to 5 Cr. The number of folios now exceeds 2.25 Cr. The Indian investor base is compounding at an exponential pace. It once took 8 years to double PAN-linked investors. The next doubling happened in just 3 years. With 11 crore investors, India has arguably become one of the largest retail investor markets globally. The same is getting reflected in Systematic Investment Plans (SIPs) have emerged as the undisputed winner for Indian investors. Even amid market volatility, ₹60K invested over 5 years would have grown to ₹83K–₹86K. Consistency, not timing, remains the golden mantra.

Mutual Fund AUM has grown at a staggering 21.2% CAGR over the last 5 years. With ₹25,999 Cr/month SIP inflows (as of Feb 2025). Despite the influx of retail investors, their ownership in Indian equities remains stuck at ~9%. This anomaly highlights a key trend: institutions are growing faster than individuals, absorbing a larger share of the equity pie even as retail enthusiasm peaks.

Despite the influx of retail investors, their ownership in Indian equities remains stuck at ~9%. This anomaly highlights a key trend: institutions are growing faster than individuals, absorbing a larger share of the equity pie even as retail enthusiasm peaks.

On the other hand, high Net-Worth Individuals (HNIs) are embracing Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) in droves. AIFs alone have crossed ₹8.4 lakh crore in committed capital, signalling a shift toward more sophisticated, bespoke strategies.

Another emerging theme is the gradual erosion of the Nifty 50’s dominance. Once seen as the benchmark of India’s market pulse, the Nifty 50 now contributes just 42.7% to the total market capitalisation, with its share of cash turnover down to 35.2%. The spotlight has shifted to midcaps, smallcaps, and the Next 50 segment, which are gaining market share and investor attention. This dispersion of market participation across broader indices signals an expanding breadth in India’s equity universe—a positive sign for long-term capital formation.

Among all these, the Indian traders have been recognised by the regulatory authorities too. The tax return structure for FY 2024-25 has introduced exclusive business codes—21009 and 21010—specifically for this community. This formal acknowledgement elevates traders as a distinct and influential category in India’s financial ecosystem.

Together, these shifts paint a compelling picture of an India that is not only investing more but investing better. The depth, breadth, and maturity of participation are improving rapidly. While valuations may seem stretched and near-term volatility could persist, the long-term story is clear: India is transitioning from a sentiment-driven to a structure-driven equity market. The future will belong to investors who can adapt to this new paradigm—one rooted in discipline, diversification, and long-term vision. Hence Indian capital market and economy are far away from the trade war type of hiccups. 

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Small Caps are now Historically Low in terms of Financial Leverage

In the small-cap & midcap fall of 28^th Feb 2025  the valuations, 200 days DMA and the financial leverage at the same time have come down making it more provoking for a long-term investment portfolio to be built from now.

The Nifty Smallcap 100 is down 24% and the Midcap 100 is down 21% since September 26, 2024, with 85% of BSE 200 stocks below their 200 DMA. The 200-day moving average (DMA) is a key technical indicator of long-term trends. When 85% of BSE 200 stocks (a broad index of 200 large and mid-cap companies) are below this level, it signals widespread bearish sentiment. The 200 DMA trend (85% below for BSE 200) suggests MSCI India’s 200 DMA (likely around 2,800-2,900 points based on prior levels) is a resistance level, with the index possibly trading below it (~2,600-2,700 by March 2025, assuming a 15-20% drop from 3,200). MSCI India’s P/E ratio fell from 25x in September 2024 to ~19x by February 2025, making it attractive long-term but still under pressure short-term.

With 50% of stocks down >20% and 85% below 200 DMA, MSCI India is now in the oversold zone. The fact that half of MSCI India stocks are down more than 20% since September 26, 2024, highlights a significant correction in large and mid-cap Indian equities, aligning with the broader market downturn (Nifty 50 -15.61%, Smallcap -24%, Midcap -21%). Two-thirds (~66%) of Nifty Small cap 100 (100 stocks) and Midcap 100 (100 stocks) being down 20% or more translates to ~66 stocks each.85% of BSE 200 stocks are currently below their 200 DMA; prior corrections have bottomed around 85%-90%

Now comes the leverage analysis part of small caps. The net debt ratio for small caps may have slightly risen (e.g., to 0.35-0.40) due to reduced cash reserves during the correction, but remains low compared to historical highs. Sectors like Metals and Energy might see modest increases as commodity prices stabilize, while IT and Consumer Discretionary retain low leverage. The low net debt ratio (0.29) suggests small caps are less vulnerable to debt defaults or liquidity crises than in prior corrections (e.g., 2008 or 2015, when ratios were 1.23 and 1.35). From March 2021 (0.50) to September 2024 (0.29), the overall small-cap leverage declined by 42%, driven by sectors like Utilities (-82%, from 1.10 to 0.54), Metals (stable at 0.24), and Real Estate (-39%, from 0.39 to 0.23).

The overall financial leverage across sectors has seen a significant decline from 1.35x in 2015 to 0.29x in Sep 2024. This suggests a reduction in debt levels, improved cash positions, or stronger earnings generation in small-cap companies.

  Sectors with Sharp Declines:

• Metals: Dropped from a peak of 4.32x in 2015 to just 0.24x in Sep 2024, showing a sharp deleveraging trend.
• Industrials: Declined from 1.25x (2003) to 0.11x (Sep 2024), reflecting better financial discipline.
• Consumer Discretionary: After a peak of 3.84x in 2012, it fell to 0.80x in Sep 2024, indicating reduced debt dependency.
• Utilities: This sector has historically had high leverage, but after peaking at 8.68x in 2018, it has come down significantly to 0.54x.

 Conclusion

The overall decline in leverage across small-cap sectors signals stronger financial health, reduced debt reliance, and improved cash management. The small-cap universe’s financial leverage has significantly declined to 0.29 by September 2024, the lowest in 21 years, reducing risk during the current correction. Companies have likely reduced debt in response to changing market conditions, economic cycles, and regulatory environments. The 200 DMA trend (85% below) reflects sentiment-driven selling, not leverage issues, suggesting the market may be oversold but requires catalysts for recovery. On the other hand half of MSCI India stocks are down more than 20% since September 26, 2024. While the market may be nearing a bottom (historically 85%-90% below 200 DMA), recovery depends on external and domestic catalysts. All the technical and financial aspects speak loudly its time now, but global factors will play its dice which makes the predictable unpredictable. 

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What does P/BV, (EBITA/EBITDA) & PAT speaks about Midcap?

 

Indian midcap sectors that might perform well shortly (as of February 20, 2025), and considering the historical performance midcaps with a 10-year CAGR of 18.8% outperforming large caps (13.2%) and small caps (15.7%), albeit with higher risk (25% standard deviation and 49% max drawdown). The Nifty Midcap 100 is trading at a forward P/E of ~33x, a 58% premium over the Nifty 50’s 20.8x, and the BSE Midcap 150 is at ~26x, down from a 5-year median of 30.6x. Despite the correction, valuations remain elevated, reflecting a partial unwind of the 2023-2024 rally’s exuberance.

 Price-to-Earnings (P/E) Ratio

The Nifty Midcap 150’s forward P/E ratio is approximately 35.1 as of February 19, 2025, per data from sources.

• This is down from higher levels in 2024 (e.g., above 40x during the peak), following an 18% correction from the September 2024 high. The Nifty Midcap 150 trades at a significant premium to the Nifty 50 (20.8x), roughly 68%-88% higher, depending on the exact P/E used (35.1x vs. 39x).
•  The P/E has moderated from its 5-year median (closer to 31x-33x), but remains elevated, signalling that while the correction has reduced froth, midcaps are not yet at historical bargain levels.

 

Earnings Before Interest, Taxes, and Amortization (EBITA/EBITDA)

• Exact EBITDA for the Nifty Midcap 150 isn’t readily available as a real-time aggregate. However, EBITDA can be inferred from PAT and operating margin trends. With midcap operating margins up 35-40 basis points year-on-year in FY25 (per earlier analyses), and assuming a PAT-to-EBITDA ratio typical for midcaps (e.g., 40%-50% of EBITDA converts to PAT after interest, taxes, etc.), EBITDA could range from ₹4.5 lakh crore to ₹5.5 lakh crore annually as of early 2025.
• This aligns with the index’s market cap of ₹82.5 lakh crore (June 2024), implying an EBITDA-to-market-cap yield of ~5.5%-6.5%. Posts on X and reports suggest midcap EBITDA growth mirrors PAT (e.g., 138% EPS rise FY20-FY24), though FY25 growth is slower.

 

Profit After Tax (PAT)

•  For the Nifty Midcap 150, PAT isn’t reported as a single figure daily, but aggregate data provides insight. From June 2019 to June 2024, the index’s PAT doubled (207% growth) to ₹2.05 lakh. Assuming a 7%-8% growth rate in FY25 (consistent with midcap earnings trends), PAT could be around ₹2.18 lakh crore to ₹2.22 lakh crore as of early 2025.
• This growth outpaces the Nifty 50, with midcap PAT rising 138% from FY20 (₹15 EPS) to FY24 (₹489 EPS). However, FY25 growth has slowed (7-8% vs. historical double-digit rates), reflecting macro headwinds like FII outflows and muted demand.

Valuations analysis over the years

• Last 2 Years: P/E spiked to 40x in 2024, then fell to 35.1x-39x in 2025, with P/B peaking at 6x and PAT/EBITDA showing slower growth (7-8%), reflecting a correction phase.
• 5 Years: P/E rose from 20x to 35x+, P/B from 3.5x to 5x, and PAT/EBITDA doubled, driven by a 22.3% CAGR and 138% EPS growth (FY20-FY24).
• 10 Years: P/E climbed from 18x to 35x+, P/B from 3x to 5x, and PAT/EBITDA quadrupled, with a 15.4% CAGR, showcasing midcaps’ long-term outperformance.

 Conclusion

For a long-term portfolio (5+ years), now is a decent time to start building exposure to Indian midcaps, particularly in the sectors above, but not an all-in moment. The recent decline tempers the risk of buying at peak valuations, and midcaps’ historical edge (18.8% CAGR) supports gradual entry.

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Comparison of U.S and Indian Midcap Valuations

As of February 20, 2025, U.S. midcap stocks have demonstrated resilience amid market volatility. The S&P MidCap 400 Index has outperformed the S&P 500 year-to-date, reflecting investor confidence in mid-sized companies. Valuation metrics indicate that the S&P MidCap 400 trades at a forward price-to-earnings (P/E) ratio of approximately 16x to 18x, aligning with historical trends. However, within growth-oriented segments, particularly in the Russell Midcap Growth Index, over 40% of constituents are trading above 40 times earnings, significantly higher than the historical range of 10%-20%.

In contrast, Indian midcap stocks have experienced a correction. The Nifty Midcap 100 Index has declined by approximately 13% since its peak in late September 2024, underperforming both Asian and global emerging market counterparts. Despite this downturn, valuations remain elevated, with the Nifty Midcap 100's forward P/E ratio at approximately 33x, representing a premium of about 58% over the Nifty 50's 20.8x. This premium persists even after significant foreign institutional investor outflows, exceeding ₹85,000 crore in 2025, and a slowdown in corporate earnings growth, which stood at 5% in the October-December quarter. Analysts anticipate continued market weakness at least until the end of March, with some predicting prolonged pressure due to weak earnings and high valuations.

Indian midcaps’ high valuations stem from a multi-year rally in 2023-2024, where they doubled the returns of large caps, fueled by domestic investor enthusiasm and growth optimism. However, the correction in 2025 suggests a partial unwind of this exuberance, though they remain pricey relative to fundamentals, with some analysts arguing a further 15-20% adjustment could align them with historical averages.

Current Valuation Metrics of Indian Midcaps

• Nifty Midcap 100: The forward price-to-earnings (P/E) ratio stands at approximately 33x, compared to the Nifty 50’s 20.8x, reflecting a 58% premium over large caps. This is down from its peak in 2024 but still elevated compared to historical averages.
• BSE Midcap 150: Trades at around 26x P/E, below its 5-year median of 30.6x, indicating a partial correction. It remains 45% above the Nifty 50, suggesting a persistent premium.
• Historical Context: Over the past decade, Indian midcaps have traded at premiums ranging from 20%-50% over large caps, with current levels near the higher end despite a year-to-date correction of 7%-14% (Nifty Midcap 100) and an 18% drop from its September 2024 peak.

 

• U.S. Midcaps: Forward P/E of 16x-18x (S&P MidCap 400) to 40x+ (Russell Midcap Growth extremes). This range reflects a mature market with pockets of overvaluation in growth stocks.

 

1. Growth Context:
• U.S.: Midcaps benefit from a stable economy, with GDP growth projected at 2%-3% for 2025. Earnings growth is moderate but consistent, supporting valuations in less speculative segments.
• India: Midcaps operate in a higher-growth economy (6.3%-7% GDP growth expected), but recent earnings slowdowns and macro pressures have dented confidence. The premium reflects past outperformance rather than current fundamentals.
• Takeaway: U.S. midcaps appear more reasonably priced for their growth, while Indian midcaps’ valuations seem stretched despite higher economic growth potential.

Is This the Right Time to Build a Long-Term Portfolio?

1. Correction Creates Entry Points:
• The 18% decline from the September 2024 peak and year-to-date losses suggest some overvaluation has been priced out.  Market reports note that midcaps are forming higher bottoms (e.g., February 19’s 1.39% bounce), hinting at a potential trend reversal or stabilisation.
• For long-term investors (5-10 years), current levels could offer a base to capture future growth, especially if India’s GDP growth sustains at 6.3%-7%.
2. Long-Term Growth Potential:
• Indian midcaps have historically outperformed large caps over extended periods (e.g., 2x returns over a decade), driven by India’s structural growth story—rising middle-class consumption, infrastructure spending, and digitalization.

3. Selective Opportunities:

• The correction has separated winners from losers. Companies with strong balance sheets, sustainable cash flows, and reasonable valuations (closer to 20x-25x P/E) are emerging as attractive picks for a long-term portfolio.

 

Conclusion

Focus on Quality: Target midcaps with:

• P/E ratios are closer to 20x-25x (below the index average).
• Strong fundamentals (e.g., revenue growth >10%, debt-to-equity <1, positive cash flow).
• Exposure to resilient sectors (e.g., IT, healthcare, consumer durables).

Indian midcaps in February 2025 aren’t at rock-bottom valuations, but the correction has made them more palatable for long-term investors than they were in 2024. While risks potentially push valuations lower—this isn’t a bad starting point if you’re selective and patient. The “right time” for a long-term portfolio is less about precision timing and more about disciplined entry and holding quality stocks through cycles. 

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