From Cycles to Structures: India’s Equity Market Enters a New Phase

Equity markets, much like seasons, often shift between phases of exuberance and correction. For years, Indian markets were seen through this cyclical lens, rising and falling with monsoons, elections, or global tides. Today, however, the story is less about short-term weather and more about climate; a structural transformation that is steadily reshaping India’s long-term investment trajectory.
 

The 3Ds: A Structural Engine
India’s growth engine rests on three strong pillars, democracy, demography, and demand. Democracy ensures continuity and institutional strength, giving investors policy visibility. Demography offers a dividend, with a young workforce (median age ~29) and digital-native consumption patterns. And demand remains the beating heart, with private consumption, which is nearly 60 per cent of the country’s GDP, akin to a strong domestic current that propels the economy forward.

Yet, even the strongest engines encounter friction. Rural demand is reviving, helped by easing costs and a supportive monsoon outlook, but urban consumption, while enduring, will still see near-term ebbs and flows.

Credit, Capital and the Balance of Flows
The last few years saw buoyant credit growth, robust tax collections, and healthier bank balance sheets. FY24 closed with an overall credit growth of over 16 per cent, but the momentum eased in FY25, with growth slipping into single digits as banks prioritised asset quality. Corporate earnings faced four straight quarters of downgrades. This is a reminder that structural strength does not mean uninterrupted acceleration. Markets, like marathoners, pace themselves.

This soft patch unnerved foreign investors, who turned net sellers of Indian equities, offloading nearly USD 14 billion in 2024 and another USD 18 billion so far in 2025. Yet, the conviction of domestic investors has provided a counterbalance. Domestic institutional investors poured in Rs 5.3 lakh crore during 2024 and another Rs 5 lakh crore in 2025 year-to-date, while retail participation through SIPs continues to set new records each month.

Equally important is the nature of these inflows. Index inclusions are driving steady passive allocations, while active managers are sharpening their focus on governance and quality. This duality, scale from passive and selectivity from active, is strengthening market depth and making India’s equity base more resilient to short-term shocks.

Global Winds and Domestic Anchors
India’s resilience stands out in a world marked by geopolitical frictions and rising protectionism. Yet resilience is not immunity. Export-heavy sectors such as IT and chemicals are facing softer overseas demand, while widening trade deficits underline India’s exposure to global tides.

At the same time, domestic anchors are getting stronger. Rising household savings flowing into SIPs, healthier bank balance sheets, and robust government-led capital expenditure are providing ballast. This blend makes India’s equity story less about avoiding turbulence and more about navigating it with stronger sails.

The Digital Backbone as a Structural Multiplier
India’s digital infrastructure has become a force multiplier for growth. UPI alone processed nearly 19 billion transactions, underscoring the scale of formalisation. Initiatives like GST, ONDC, and the Insolvency and Bankruptcy Code are reinforcing transparency and widening market access. Together, these reforms and platforms are nudging the economy towards greater productivity, higher tax compliance, and a stronger organised sector.

This digital backbone is not just about payments or platforms, but about a multiplier effect that creates new leaders, lifts efficiency across industries, and strengthens the compounding runway for equities. India should not be seen as a ‘short-term trade’ but as a multi-decade compounding opportunity. For investors, the challenge is not whether the story is structural, but how best to participate with discipline, patience, and an eye for quality.

Disclaimer: The opinions expressed above are of the author and may not reflect the views of DSIJ.