The cyclical nature of financial markets is a valuable lesson to learn when training to be an investor. There are no courses that will teach you to be a good investor. There are experts, and numerous videos online can guide you on what to do. Financial advisors and stockbrokers are dishing out research reports. However, the decision you make is more formidable if you base it on your own effort than on someone else's.
In the world of investments, equity assets must be the basis of your core wealth. In India, more than 70% of households have real estate and gold as their core forms of wealth. Equity is a very minor part of the wealth creation plan. Yet, over the years, benchmark indices like the S&P BSE Sensex and Nifty 50 have generated returns unmatched by any other asset class.
That does not mean you jump in and start trading in options like many have done. 'Getting rich slowly' is a strategy espoused by the likes of American legendary investor Warren Buffett. His life is a testament to the power of investing in creating wealth.
Indian shares have been underperformers in recent times. A primary reason for this is that share prices in India have run up significantly in anticipation of profit growth. That is called discounting of future earnings. Foreign portfolio investors have sold a record amount of Indian shares in 2025, according to stock market data. Domestic mutual funds and institutions continue to support the Indian equity markets. That is the reason there is no sharp decline in the share prices. The flat trend in Indian markets is likely to continue till listed Indian companies show signs of profit growth recovery.
With income tax cuts announced in Budget 2025 and a reduction in goods and services tax (GST) rates, more money will be put into the hands of individuals, especially in urban India. Factors tracking India's rural and urban markets have shown that rural markets have been performing better than urban markets in terms of consumption for many months now. The impact on corporate profits will be noticeable only in the last two quarters of the 2025-26 financial year.
Stock market valuations today are based on estimates about profit growth over the next several quarters. Many profit growth prospects are based on the surge in urban consumption. Overall, consumption makes up over two-thirds of India's economy. Lead indicators published in the latest bulletin of the Reserve Bank of India show no signs of a significant recovery in the urban consumption parameters. Domestic air travel remains sluggish, and passenger car sales are not experiencing any significant growth.
Passenger car sales could get a boost with the GST rate cut. Similarly, consumer companies may witness a rise in sales. However, the stock market's performance is no longer just about consumer companies. Banking and financial services companies make up more than 40% of the Nifty index. The low urban consumption is reflected in the rise in indebtedness among urban consumers. They are busy paying off high-cost personal or credit card loans. The RBI monthly bulletin shows significantly large personal and credit card loan outstandings.
Stock markets can show signs of a turnaround only when consensus profit estimates move upward. Despite the improvement in profits in the first quarter of 2025-26, consensus estimates continue to see a downward trend, according to an analysis published in the latest NSE bulletin. That means Indian stock market valuations remain high, driven by historical trends. They are also relatively high compared to other global markets. While strong systematic investment plan flows of mutual funds protect the downside, the upside seems some time away.