Market Notes 30.11.25

a forgettable year, lessons, way ahead, macros, AI, Earnings Digest

Disclaimer

Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.

A forgettable year.

I don’t think i need to explain this - enough has been said already on this topic in social media and business news. Yes the Nifty is at ATH and most of our portfolios are still 5-15% away from the highs they saw in Sept’24-Dec’24. That has been painful no doubt, but those who’ve been around know this is normal. It’s just how cycles work.

An year back the Nifty/Large Caps investors were feeling left out of the mid and small caps and today it’s the exact reverse. The everlasting cycle for any asset class is over-ownership to under-ownership and back and that’s exactly what is playing out now. At some point, the cycle will again change in the favour of mid and small caps and they will pay back for the all the pain.

So the market really is doing what it does, no surprises.

A year full of lessons.

While from a returns point of view, the year was forgettable - but for those who like to reflect - this has been a great year to learn so many lessons, especially for those who’ve entered the markets in the last 5-6 years. Let’s enumerate a few of them:

Strategy clarity.

if you’ve not figured out what strategy are you really running and under what environments will it work and when it will not - this was a year to learn that. This is especially true for those who were running price momentum strategies that worked so well in bull markets but fell flat on the face in the last twelve months. Similarly portfolios which were primarily into small cap, micro cap and SME - were made to realize that the drawdowns are as thrilling as the upside. None of this is a surprise for those who’ve seen this before but if you were new and you thought that the strategy is the most important thing, this year taught us that the environment + strategy fit is the real thing.

Don’t trust the doomsayers.

If bullish phases end up in bearish phases by corollary, the reverse happens too. At the peak of pessimism if you’re prone to exiting the market out of fear or panic inducing news, then the market is not the right vehicle for you. The markets are not for those who want a 1 year return. The markets typically work on a 5-6 year cycle. You need to come to the market with that time horizon in mind and evaluate your performance over 5-6 years which typically encompasses a bull/bear cycle. Those who entered the market in 2018 were fairly well rewarded by 2023 and those who entered the markets in 2020 have done well so far inspite of the bad last 14 months. Similarly those who’ve entered in 2024 should look at it from a 2029 point of view. Returns in the market have always been lumpy - its just that the CAGR looks like a clean y-o-y number. I remember reading somewhere while the Sensex 20 year CAGR is 14% there is no year where it actually made 14%. Whether that is numerically true or not is immaterial but there is a big lesson in there that we all need to learn - returns are never linear.

The variables that matter change.

The bull market is all about growth, price action and narratives. They work like a charm. But once the environment changes the the rules of the game change slowly at first and then dramatically. Now profitability, RoCE, cash-flow, valuations matter. The problem is there is no line in the sand that tells us that the market environment has changed, it’s often apparent only after the fact. But once it’s changed we need to recognize it to adjust the portfolio. Also a lot of older cycle names start behaving different - some of these will bounce back and participate in the next cycle but most won’t. After a reset market will be looking out for the new winners from new sectors that were not on anyone’s radar for the last few years.

There were many other smaller lessons i am sure we’ve all learnt in our own ways and specific to our portfolios but suffice to say it’s important to use periods like this to reflect and refine your process so that we only make new mistakes in the next cycle (no running away from that) and not repeat the old ones.

Way ahead

What’s done is done. Everyone is focussed on what’s next and rightly so. I have said this before, typically a time correction lasts 12-18 months. Growth is definitely coming back, GDP numbers are out of the park, inflation is under control. We’re likely at the cusp of a new price cycle. The only joker in the pack (no pun intended) is Trump and geopolitics. If US goes into a recession or they do something stupid (we’ve seen enough to know its possible) , it will lead to a delayed recovery and more of chop. I don’t anticipate a crash because like i’ve said before for a crash you need euphoria and there has been none in the last 14 months - at least in Indian markets. But then in markets, you never know.

Macros

The Indian macro picture has probably never been better (this can be construed as a bit of an exaggeration but i think it’s not). High growth and low inflation is goldilocks. Except for the high imports driven by gold/silver and slightly subdued exports driven by tariffs - all normalized parameters look quite robust. Crude is no longer a worry for India. The tax collection remains robust. Currency is fairly stable. RBI’s CRR cut was exemplary and that is what is probably driving the growth that we’re seeing. Interest rates have more room for being cut given low inflation. GST cut impact yet to come into the growth. Monsoons have been great across the board. So from a India point of view the picture looks quite good.

Globally ofcourse things are very messy. US, Europe, China and Russia geopolitical stand-off persists and any adverse move from any one of them seems to be the only real risk. Of course that is not predictable at all so we have to take it as it comes. The US dollar was in a bit of a “crisis of confidence” but that seems to have stemmed, at least for now, or else that could have been a major source of dislocation for all markets.

AI.

The biggest discussion point seems to be around AI and Nvidia and whether there is a bubble. Of course no one knows but suffice to say that while the demand will continue to remain high, the margins that Nvidia has been earning are definitely under risk given alternatives like TPU and xAI chips coming into play. They may not be as good right now but market is a discounting machine and that probably explains the relative under-performance of Nvidia and tech in general (except Alphabet which owns the TPUs). The game is not over yet and remains tightly in balance.

Another angle that’s coming out if one hears the leading AI voices like Karpathy and IIlya on certain podcasts is that both seem to agree that mindless scaling of LLMs by pushing more GPUs for training won’t work beyond a point. If the AI has to materially improve performance from here then a different or new approach is needed. This again risks a lot of capex that’s ear-marked for training.

The next leg of AI capex will definitely be around inference and applications. This means that while the data centers and AI is general will continue to thrive, the high margin GPUs used primarily for model training may need a bit of a pause if the scaling doesn’t work well. Anyway i am no expert on the topic. AI is a megatrend and definitely here to stay, but from a markets point of view the narratives and the winners'/losers will keep changing every few years.

Earnings.

The Q2 earnings have been quite robust. Given the regulatory challenges i will refrain from naming any names but i am sure there is enough content out there on PEAD that you all have a fair idea on how to go about it. However i will list out a few sectors or themes that have done well:

1. Power and it’s ancillaries continue to do well. There are certain challenges that transformer companies are facing but if the AI and renewables capex remains intact expect them to do well. The rest of the power sector continues to do very well.

2. Consumer durables led by jewellery companies posted good numbers. However given the valuations, gold price volatility risk and the subdued market environment the reaction has been subdued. If they continue to report good numbers in Q3/Q4 there could be a play in some of the names here.

3. NBFCs are starting a new cycle and its quite apparent from the results and commentary. Presently led by the gold financiers but others like those who lend against durables, autos, cvs, microfinance etc are likely to catch up.

4. Pharma led by CDMOs had an okay quarter but the action is promised in “H2”.

5. Chemical margins seems to have bottomed out and some of them may have embarked on a new cycle.

6. Auto components have been the star performers led by their stupendous numbers for the second quarter in a row and also aided to some extent by the GST cuts and optimism in PV space. There could be more room here.

7. Some of the aerospace names look promising - barring the valuations which are fair given the opportunity. Key here is quality of execution.

8. Pre-Fab seems to be the new theme for the season, among others. While demand is good, margins remain key here.

One of the frameworks - The Earnings Quadrant - i use for analyzing earnings and acting on them is as below.

Not to be left out of the AI bandwagon - i created this in 5 seconds, using Gemini Nano Banana :)

The ideal spot obviously is the green and blue zone but its equally critical to manage the orange and reds. Every result you analyze should be categorized into one of the four quadrants and that makes acting on them much easier. There is of course a lot of nuance there which will need a longer discussion. But hope this helps.

Until next time.