Dear Investors,
We at Veritas Research and Advisors (applied for an RA License with SEBI) are thrilled to announce our first newsletter for the quarter ended June’25. We hope this newsletter adds some value in your daily insights.
Market Recap FY25: Challenges Faced, Gains Secured:
Before moving to Q1FY26, let’s briefly recap the past one to one and a half years. The economy faced several challenges,including the Lok Sabha elections, 40-year-high inflation (6.2% in Oct’24), multiple RBI rate hikes, the US elections, and the Israel–Iran war, making it a roller-coaster ride for the Indian capital market. Notably, it was an exceptional year for gold investors, with prices surging nearly 40%, and reached over 1L on the back of heightened global uncertainty.
Despite multiple challenges, India emerged as the best-performing emerging market. GDP growth for FY25 was 6.5% (slightly below expectations), while Q4FY25 beat estimates at 7.4%. After a strong rally in 1HFY25, the market corrected on heavy FII selling, stretched valuations, and weaker earnings amid high input costs and interest rates. For FY25, Nifty, Smallcap, and Midcap delivered moderate gains of 5%, 4%, and 5%, respectively.
Q1FY26 Period in Review and Beyond:
Now, turning to Q1FY26, the quarter began with two notable developments. First, India overtook Japan to become the world’s fourth-largest economy, with nominal GDP reaching $4.19 trillion—driven by strong domestic growth and strategic global positioning. Second, the RBI cut the repo rate by 50 bps and the CRR by 100 bps amid multi-quarter low inflation, a move aimed at boosting market liquidity.
On top of that, following Donald Trump’s return to power, the White House imposed tariffs on several major countries, including India. Despite these external pressures, India’s robust economic fundamentals propelled the stock market to impressive gains in Q1FY26 led by better than expected earning growth in Q4FY25: the Nifty, Smallcap, and Midcap indices rallied 10%, 14%, and 17% respectively. As a result, market valuations in India are now becoming increasingly expensive compared to other developing and emerging economies—a theme we’ll address further in the “Outlook” section.
On the corporate earnings front, Q1FY26 has been relatively muted. So far, 955 companies have reported their results, with aggregate revenue and PAT growth of 7.5% and 6.3% year-on-year, respectively (including BFSI). We believe this muted growth belies what could be an eventful year ahead. On the export front, heightened tariff actions are likely to impact sectors such as gems & jewellery, textiles and auto components. Domestically, anticipated rate cuts, tax concessions, and a favourable monsoon are expected to support a rebound in consumption and drive recovery after several years of slowdown.
Veritas Research View and Outlook:
Given the current environment, the Indian market is positioned approximately in the middle of the spectrum. Valuations in the Indian equity market remain elevated, with the one-year forward PE and PB multiples trading at 23x and 3.4x, respectively—highest amongst the major developed and emerging markets. Meanwhile, India’s dividend yield is among the world’s lowest, at 1.2% for FY25 and estimated, 1.4% for FY26. Having said that, market correction may or may not occur, depending on whether corporate earnings meet or exceed street expectations.
In the near to medium term, uncertainty is expected to persist due to the ongoing tariff situation, which may weigh on corporate earnings, while urban recovery is still pending. Nonetheless, we remain optimistic on the long-term outlook for Indian equities, supported by continued private and public capital expenditure, robust corporate balance sheets, historically low inflation, improving consumption demand after several sluggish years, healthy FDI inflows, lower borrowing costs, and tax reductions. Owing to the same, we remain positive on the sectors like, consumption, lending space, consumer discretionary, and manufacturing.
Happy Investing,
Veritas Research and Advisors