Indian equities may find fresh momentum as earnings rise

For a retail investor checking a mutual fund app at night, the last two years have felt oddly confusing. India’s economy looked steady, SIP money kept coming in, yet Indian equities did not quite shine against other big markets.

Sorbh Gupta, head of equity at Bajaj Finserv Asset Management, believes that dull phase may be changing. His broad message is simple. Indian stocks now look better placed than they did during the recent stretch of expensive prices and weak relative returns.

Indian equities may regain momentum

Gupta says Indian equities have lagged both emerging and developed markets for more than two years. That matters because investors often assume India always trades at a premium and keeps leading.

The premium may remain, but the easy part of that story had gone missing. Share prices had run ahead earlier, while earnings did not keep pace. Markets then spent around 18 months digesting that excess.

That “time correction” is important. Prices need not crash to become more reasonable. Sometimes they simply stop moving fast while company profits catch up.

Gupta argues that corporate earnings are now showing early signs of recovery. In plain English, companies may start making better profits again. If that happens, stock prices usually get a stronger base.

For a family with money in equity mutual funds, this means patience may matter more than drama. The market may not reward every stock equally, but the broad setup looks less stretched than before.

Why retail investors are being told to wait less

The most practical point in Gupta’s view is about timing. Many small investors wait for a perfect entry point. Markets rarely send such invitations.

He believes current valuations offer a more balanced risk-reward picture for long-term investors. That does not mean stocks are cheap everywhere. It means the odds look less one-sided than they did earlier.

This matters for SIP investors. A person investing ₹10,000 every month need not obsess over one market level. Regular investing buys more units when prices fall and fewer when prices rise.

Gupta says discipline should beat market timing for systematic investors. That is an old lesson, but it becomes useful only when markets feel uncertain.

For lump-sum investors, he suggests a three-month systematic transfer plan. This means moving money into equities gradually, instead of putting everything in one day.

That approach lowers anxiety. If the market falls next week, the investor has not used all the cash. If it rises, some money has already entered.

This is not a promise of returns. It is a way to avoid the classic mistake of freezing when markets look uncomfortable.

Domestic money is holding the line

One striking feature of the Indian market has been the split between domestic and foreign investors. Domestic institutional investors have kept buying, helped by SIPs and local savings.

Foreign portfolio investors, or FPIs, have been more cautious. They have sold aggressively during parts of the recent period, often because global money chased other themes or safer returns.

Gupta expects domestic flows to remain steady. That sounds plausible because India’s mutual fund culture has changed. SIPs have become a monthly habit for salaried households.

A decade ago, foreign investors had a much larger influence on market mood. Today, local money can absorb more selling. That does not make India immune, but it changes the balance.

Gupta also sees room for foreign investors to return. He points to stronger earnings, more sensible valuations, and easing pressure on India’s external finances.

External finances simply mean how India manages money flowing in and out of the country. Oil prices, imports, exports, foreign debt flows, and the rupee all matter here.

The RBI has also taken a more active monetary stance, while the government has eased taxation on FPI debt flows. Gupta believes these steps reduce pressure on the balance of payments.

For ordinary investors, this is not an abstract macro chart. If foreign money returns, large liquid stocks often feel the first impact. That can support index-heavy mutual funds and large-cap portfolios.

Banks, healthcare and small caps matter

Gupta’s sector view is not built around one fashionable bet. He sees valuation comfort in large caps, while still finding opportunities in mid-cap and small-cap stocks.

That distinction matters. Small caps can create wealth, but they can also punish careless buying. The label “small-cap” does not make a weak business attractive.

Gupta says stock selection remains critical. Some companies are expensive, some are reasonable, and some deserve to be avoided. This is where active fund management tries to earn its fee.

For long-term investors, he points to diversified small-cap and flexi-cap strategies. A flexi-cap fund can move across large, mid, and small companies, depending on where managers see value.

He also likes pharma, healthcare, and wellness as long-term themes. The logic is not hard to see. Indians are spending more on health, preventive care, diagnostics, and medicines.

An ageing population will add to that trend. So will rising incomes and better awareness in smaller cities.

Financials also stand out, especially large private sector banks. Gupta says they have underperformed for several years, while valuations now look more reasonable than their own history.

Banks are often the market’s main transmission belt. When credit demand improves and bad loans stay under control, their profits can recover quickly.

But investors should not read this as a free pass to buy anything with “bank” in its name. The difference between a strong lender and a weak one often appears late, then all at once.

AI excitement may cool near term

Gupta’s caution on artificial intelligence is worth reading carefully. He is not dismissing AI. He says its long-term role in business and the global economy remains strong.

But he also expects some cooling in AI-related stocks from current levels. That is a fair warning after the sharp global rally in companies linked to the theme.

This is the old market habit in a new costume. A powerful technology arrives, investors rush in, and prices start assuming too much too soon.

The internet did change the world. Yet many internet stocks still collapsed in the early 2000s because valuations ran far ahead of profits.

AI may follow a less extreme path, but the lesson holds. A strong theme can still become a poor investment if bought at the wrong price.

For Indian investors, the message is practical. Do not confuse a good story with a good entry point. Keep return expectations grounded, especially in global technology funds and theme-heavy portfolios.

The next few quarters will test this more sober view of Indian equities. Earnings need to improve, foreign flows need to stabilise, and monsoon risks cannot be ignored. But for the ordinary saver, the larger lesson is already clear. Wealth rarely comes from catching the perfect bottom. It comes from staying invested in sensible assets, cutting out noise, and knowing when excitement has become too expensive.