Positioning Yourself for Success in the Equity Market

As we stand at the crossroads of global economic shifts, one undeniable truth emerges: India’s equity market presents both significant opportunities and unique challenges. For more than a decade, India has been a shining star in the global investment universe and has outperformed most of the global indices. In the last ten years, Indian equity has generated a return of 115 per cent compared to emerging markets giving only 40 per cent in USD terms. However, beneath that halo lies a more nuanced reality. While the headline growth remains strong, the last 12-14 months have been less forgiving. The NIFTY 50, India’s benchmark index, has delivered a modest ~5.6 per cent rise in rupee terms. In dollar terms, many investors have felt the pinch of a flatline market, with the NIFTY trading sideways due to several global factors. At the same time, other markets have generated returns in double digits. The reason is, India’s valuations remain elevated compared to other emerging economies, making the investment terrain a bit more complex.[EasyDNNnews:PaidContentStart]

This brings us to the key takeaway for investors: relative attractiveness. While India’s economic growth potential remains strong, valuations have cooled, albeit slightly. On a relative basis, India may look more appealing than many other markets that are facing deeper structural challenges. Nonetheless, it is essential to remember that higher valuations leave less room for error, especially in the face of global risks such as geopolitical tensions, the U.S. dollar strength, and AI-driven market cycles.

Valuations in India have been high for some time, and this presents a risk, particularly for those chasing quick returns. While India’s market valuations have corrected somewhat over the past year, the market remains costly on an absolute basis. It is still trading at a price to earnings (PE) of around 22 times its trailing twelve months’ earnings. Thus, careful selection of undervalued companies within the broader context is critical for you. Investors must embrace patience, as many high-quality stocks may take time to unlock their value in such a high-valuation environment.

One of the most exciting structural shifts in the Indian equity market is the rise of retail investor participation. As of 2025, the number of demat accounts in India has surged to 19.4 crore, up from 3.6 crore in 2019. This dramatic increase in retail participation reflects the country’s growing middle class and their evolving investment preferences. More importantly, it indicates a shift away from traditional assets like Real Estate and gold, towards equities and Mutual Funds. In FY25 alone, 41.1 million new demat accounts were opened, underscoring the rising trend of equity investing among retail investors. With this rise in participation, the market has become more liquid, and overall market depth has improved. However, this shift is not without its challenges. Many of you, particularly those new to the market, may not yet be fully familiar with its intricacies. Market volatility, coupled with increased supply through IPOs and QIPs, can overwhelm inexperienced investors, making it critical for them to tread carefully.

In light of these dynamics, diversification should be a priority for you. In a market where valuations are high and supply is heavy, it is critical to spread risks across different themes, sectors, and market capitalisations. For instance, Banking and financials are currently attractive, offering more reasonable valuations and improved margins due to steady credit growth and stable asset quality. These sectors can serve as a safe bet for investors looking to balance risk and reward. Conversely, sectors like IT services—which have historically performed well—are facing challenges due to AI adoption, automation, and global pricing pressures. The evolution of these industries will likely create winners and losers, so you need to approach these stocks with caution.

Looking ahead, India’s equity market offers strong long-term growth potential despite short-term fluctuations. Investors who adopt a disciplined, value-focused approach, avoiding market hype, will benefit as the country’s equity-driven savings culture grows.

RAJESH V PADODE
Managing Director & Editor

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]