Heading into year-end — India is building its own growth engine.
Dear Investors,
We at Veritas Research and Advisors (applied for a Research Analyst License with SEBI) are excited to share our quarter ended Dec ’25 Newsletter. We hope to add some valuable insights.
Global Market Updates – Heading into Year-End, Genuine Rally or AI Exhaustion?
The US market has been kind to investors so far in 2025. After a turbulent first half marked by a sharp sell-off in early April—triggered by trade and tariff uncertainties—the rally resumed strongly. As of early December 2025, the S&P 500 is up ~16–17% YTD, the Nasdaq Composite has gained ~22%, and the Dow Jones Industrial Average is higher by ~12–13%.
The key question now is whether this rally is fundamentally backed by earnings growth or largely driven by sentiment and enthusiasm around AI-led expansion. Globally, markets benefited from easing inflation, rising confidence around potential Fed rate cuts, and strong participation from AI-focused companies, all of which supported risky assets.
That said, valuations cannot be ignored. The S&P 500 is trading at ~29–31x on a TTM basis, well above its long-term average, and at ~22–24x on a 12-month forward basis—still elevated versus historical norms. Whether these valuations are justified by forward earnings or represent a multiple re-rating remains an open question. Time will tell.
Indian’s Growth Momentum: An ignored sector loudest this time:
India’s growth fundamentals remain strong, with GDP expanding ~8.2% in Q2FY26, driven by robust manufacturing and services activity, while easing monetary policy, cooling inflation, improved earnings visibility, and reduced global tariff uncertainties are expected to sustain momentum; however, despite a cumulative 125 bps repo rate cut in FY26 to 5.25% supporting consumption, the Indian rupee has weakened sharply—slipping past ₹90/USD for the first time—amid continued FPI selling and heightened geopolitical tensions.
Over the past 2–3 years, Indian banks largely remained out of favour as benign inflation, elevated interest rates, and a slowdown in consumption weighed on investor sentiment. However, performance has improved meaningfully in CY25. As of 5 December, BANKNIFTY has delivered returns of ~18% YTD and ~9% in Q3FY26, outperforming the broader market. In comparison, NIFTY/MIDCAP/SMALLCAP posted YTD returns of ~11%/0.4%/(-7%) and Q3FY26 returns of ~6%/4%/(-2%), respectively.
- This performance has been driven mainly by large corporations. In Q2FY26, India Inc. (excluding BFSI) reported revenue growth of ~9% and profit growth of ~16%, aided in part by a favourable base effect in refineries due to lower GRMs last year.
A recent GST cut effective from 22 September 2025 provided a strong boost to consumption. Auto sales saw sharp traction during Navratri, with retail sales rising ~34% YoY, and this momentum is expected to continue through the rest of the financial year.
Veritas Research View and Outlook:
The Indian economy continues to demonstrate resilience relative to other developing and emerging markets, supported by strong and persistent GDP growth. Recent structural initiatives have translated into tangible economic outcomes, including robust auto sales and a boost to insurance penetration following NIL GST on life and health premiums. Additionally, easing monetary policy is expected to revive credit growth, which remained muted for an extended period; we expect mid-teens growth in both credit and deposits.
Q2FY26 was a strong quarter, led by healthy earnings growth across sectors. Within our coverage universe, NBFCs delivered robust earnings growth of ~18–20%, driven by lower funding costs and improving credit costs. Auto companies also reported strong profitability, supported by record sales during the September quarter and a favourable base. Selected service-oriented companies posted steady earnings growth as well.
However, some private lenders, healthcare players (especially CDMO), and IT companies continue to underperform our expectations, as headwinds such as elevated credit costs, muted urban demand, tariff-related pressures, and delayed global discretionary spending have yet to fully normalize. At Veritas, we remain constructive on IT (particularly offshore players) and selectively positive on CDMO, while being more optimistic on consumption, consumer discretionary, NBFCs (including MFIs and MSME-focused players), manufacturing, and service-oriented companies coverage added during Q2FY26.
That said, broader market valuations remain elevated, even as the Nifty trades closer to its historical average. The following exhibit captures this divergence clearly.
(Source: MOSL)
“2026 is not about timing the market, but giving time to the market—wealth compounds quietly.”
Happy New Year!
Happy Investing,
Veritas Research and Advisors
Disclosure:
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Disclaimer:
This note reflects the views of the author as of the date mentioned and is subject to change without prior notice. Veritas Research and Advisors does not undertake any obligation to update or revise the information contained herein.
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