Market Notes - June 2026

Indian Markets, New Cycle?, How to play the cycle?, Private Capex, Nifty vs Rest, Going Global and 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.

Regulatory Information.

Indian Markets.

In the previous edition of Market Notes, i wrote:

The cycle did turn. We’ve had an extremely swift move since the beginning of April, up until now. The move has been led by micro and small caps. This is classic behaviour. When you have a recovery from bear markets or a steep correction, in the first phase whatever was most beaten down bounces back up most swiftly. Small and micro caps were beaten out of shape over the last 18 months and they are predictably leading the upmove.

Could this be the beginning of a new cycle? Let’s explore that thought.

New Cycle?

What do we mean by a new cycle? There are two types of cycles in the market:

1. Price Cycle or Market Cycle

2. Business Cycle or Earnings Cycle

The price cycle is when you’ve had a big up-move which is then followed by a deep and/or longish correction and then the market makes a new high surpassing the previous one. So the first condition is met. We had big move in the markets from April 2023 to October 2024 (18 months), then we went into a period of correction and consolidation which has lasted so far from Oct 2024 to June 2026 ( 20 months). We’re yet to cross the previous highs and hence we remain the correction/consolidation zone. If we were cross to the new highs lets say on the small and micro cap indices which represent the broader markets fairly well - then we can say that price-wise we’re entering a new cycle. In my opinion given the duration of correction and consolidation, persistently negatively newsflow which is now turning neutral if not positive and massive relative under-ownership of Indian equities - we will likely enter the new price cycle in the next few months. If we don’t, the wait will continue, we’re after all married to the markets :)

The business cycle is one where instead of price we track the earnings trajectory. If we were to look at the earnings trajectory there is clear sign of breakout to new highs both on the revenue as well as profits. See this very helpful graph that is provided by StocksScans.in.

If you look at the median revenue growth (across all companies above a market cap of 1000 crores) we’ve had the highest number in 12 quarters at 15.2% and if you look at the median PAT growth we’re second highest in the last 12 quarters by just 1%.

So clearly revenue and earnings are breaking out and the thesis of a new earnings cycle is also looking fairly plausible.

Quick Note: Q1 for a lot of companies may see impact of war and delays in shipping etc but the market is more likely to ignore it unless the war re-starts again (but for real, and not on whatsapp groups!).

So there we have it - looks fairly plausible that a new price and earnings cycle is just ahead of us.

How to play the cycle?

The play is simple. Every cycle has certain themes that lead both on price as well as earnings. You have to identify them, allocate to them and ride them. It’s not a perfect science but ideally every cycle gives you atleast 3-4 different themes you can bet on. Once you identify the theme, then its a question of figuring out which stocks to allocate within than theme and how much and how many themes will you focus on in your portfolio. Some very aggressive investors will pick just one leading theme and and focus fully on that while some others will spread it out. I am in favour of the latter as the drawdowns in the first approach can be mind-numbing even during periodic corrections that will happen throughout the cycle.

Some of you have asked me what a theme is? A theme is different from a sector. A sector is just the category of business that the stock belongs to. A theme is characterized by one or more external variables driving the earnings of that sector.

For eg. AI buildout is the theme (the variable) which is driving the earnings of many sectors and sub-sectors. So one theme can drive many sectors with it. You need to track the theme or the key variables that make or break the earnings thesis of those stocks and sectors.

For eg. defence indigenization and export is the theme driving the earnings of several sectors which are directly or indirectly benefitting from these. Now there are certain auto-ancillary stocks which have acquired defence subsidiaries and are being re-rated. So it’s important to understand the theme or the key variable and downstream of that you will have several ideas but your decision point will be just one.

At times, themes and sector may overlap but its important to understand the difference.

What themes are leading is something we’ll look at later in the earnings digest.

Return of the private capex.

Private capex was like the proverbial Godot - always talked about but never arrived. But now i get a feeling that when it’s actually arrived, no one is talking about it. If there is one thing that stood out for me in the Q4 concall commentary it was that management after management talking about capex, demand > supply, commissioning of plants and so on. I think India Inc has embarked on a fairly large capex drive over the last 12 months which may continue for the next 12-24 months across industries. So while geopolitics is hogging the limelight, managements are quietly anticipating a demand shock. This is still conjecture but a feeling i got reading multiple commentaries across companies, but then again it could be because i focus primarily on growth companies and they’re perennially in the capex mode. But this is something we should watch out for.

Nifty vs the rest.

One of the key things i am observing over both the previous price cycle as well as this one is that the broader market is out-performing Nifty. Of course there will be interim shorter terms when Nifty does better but i think India’s story is shifting away from the legacy Nifty companies. Nifty Smallcap has done 2x of Nifty over the last 5 years.

Why is this so, we again go back to the stocksscan.in earnings graph but this time for Nifty:

Nifty’s PAT growth is stuck at 10% or below for the last so many quarters. Essentially if one looks at the composition of Nifty we have:

1. private and public sector banks which in aggregate may be doing well but the competitive intensity in the financial space is very high and the cake is being split between too many players. All of them have pristine balance sheets having written off everything or provisioned already. So all are lending and under-cutting each other.

2. FMCG - saturated categories and volume growth is stagnant or very low.

3. IT - the large cap IT is most vulnerable to AI and also to GCCs and it’s showing.

4. Rest are commodity and cyclicals

So i dont see where the growth will come from in this segment. Of course given that on the price cycle they are beaten down there can be some returns to be had here but on the earnings cycle i am not so confident as yet. If the numbers change we will change our minds.

Should you go Global?

Is that even a legitimate question? Of course you should but only while fully holding on to your horses.

The noise around global investing is deafening. Influencers are pushing everyone to go global. Invest in Korea, invest in memory stocks, invest in AI beneficiaries.

Of course by all means invest. But don’t make the mistake of doing it on hear-say and as a one off.

We all have seen the crypto mania - it was the same noise. How can you not allocate to crypto? Now no one is talking.

Please don’t get me wrong, i am not against going global (even i have and i should do more ) or against crypto (where i never have). What i am against is doing things randomly without having a proper thought process and plan in place. The thought process and the plan of action is what the influencers should focus on and not just hype up the recent returns which helps no one.

Go global but first (in no specific order):

1. Figure out how much you’ll allocate to global stocks, funds, etfs

2. Figure out the ops, taxation, time difference, execution.

3. Figure out how you will research, who will tell you when you buy and exit?

4. Figure out how you will construct the portfolio

5. Figure out your strategy? whats your edge?

6. Finally - are you committed to making it a permanent part of your portfolio? Global investing is just like India investing if you start you have to do it forever and only then will it work out for you.

And my unsolicited opinion - stick to US and India. They are the best markets both in terms of returns and breadth of stocks and sectors over the last many decades. Markets like Korea, China, Brazil etc have flash in the pan years that only those who are full time into this can time and play. I can’t.

I will stop here.

Earnings Digest.

Given regulations, I want to talk about sectors with good earnings rather than specific stocks. Here are the themes that stood out in Q4:

1. Power and Ancillaries - continues from the last note. They have led the recovery given the visibility they have in terms of order book and execution. Some of them may have gotten a bit ahead of the near term earnings but we cant help it as they’re expected to remain over valued on near term earnings for the length of their eventual run.

2. AI enablers - A host of companies which are ancillaries to US hyperscalers or those US companies which are delivering to the said hyperscalers - some of them are shady and one need to keep the eye firmly on the ball - but if the earnings numbers are coming through and the theme is hot expect them to continue to do well.

3. Defence - is making a violent comeback for the second cycle. But this time the cycle is led by the private players and not the PSU defence names like last time. A lot of the effort they’ve put in the last few years seems to be coming to fruition and the next few years look interesting/promising for many of them. We need to watch which ones deliver and which ones are unable to executes. Men vs Boys thing.

4. Reverse Tariff Plays - These were names which were hit by the US tariffs but not only survived but came out stronger. They survived the 25-40% tariff and now that things are back to normal as with the impending US-India trade deal they should be in a great position to do well and its already showing in earnings and commentary.

5. Pharma, CDMO - continue to do well from last time. GLP-1 going mainstream and a lot of new drug discovery led by AI should keep these guys busy. Also China+1 finally is playing out thanks to US-China rift. Seems secular this sector. After a long time even generic pharma is reporting good numbers and some say pharma is the new defensive as IT has ceded the space. No comments.

6. Mid Cap IT - while on the topic of IT, i think the market is now beginning to differentiate between legacy large cap IT and those that have taken steps to become AI first via acquisitions or internally over the last few years. I think this difference will persist and a lot of mid-cap IT names may end up surprising. It’s a wait and watch.

7. Auto and Auto Ancillaries - continuing to do well. No major surprises here and looks poised for medium term. In the short term can monsoon play spoilsport?

8. Textiles - I think this can be the dark horse led not yet by earnings but by headwinds of tariff, shipping disruptions going away and the catalysts coming into play. The catalysts should be the US, UK and EU FTAs coming into play.

9. Chemicals - A lot of names here have seen margins expanding and have guided for both margin resilience and coming back of revenue growth. Still one needs to be selective here. This sector like textiles is emerging after a while so there is potentially under-ownership here that can be exploited.

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Thank you for reading.