Market Notes - March 2026

Indian Markets, Opportunity, AI, Intelligent Hardware, Geopolitics, Behaviour, 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.

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Indian Markets

The markets are no doubt beaten down but there are clear signs of bottoming out. Here’s what I’m observing - bad news is unable to push the market down strongly since last few weeks. Tariff fears, FII outflows, global uncertainty - the market absorbs it and holds fairly well. At the same time, the best of news - rate cut expectations, solid macro numbers, trade deals, decent earnings - isn’t pushing us up either. This is the classic bottoming out phase.

I’ve seen this pattern before. In 2018-19, in 2013. The bottom never feels like a bottom when you’re living through it. It feels like nothing is working. You buy a dip and it dips further. You wait for a breakout and it fizzles. The market just chops around in a range and drains your patience and your conviction. That’s exactly where we are.

Frustration levels among participants are extremely high right now. And that’s natural. We’re almost two years into a period of no returns, low returns, or outright negative returns depending on where the portfolio was invested. Small and micro caps have been particularly painful.

But as we’ve discussed in earlier notes - this is a cycle. We had the good times. We’ve now gone through the bad times. That’s how markets work. The mistake most people make is assuming the current phase is permanent. When markets are up, they think it’ll go up forever. When markets are down, they think it’ll never recover. Neither is true. The cycle turns. It always does.

Opportunity.

This is definitely an opportunity.

Valuations in the small cap space have corrected significantly from their peaks. A lot of stocks are down 40-60% - some deserved and some not so much. Some of them are actually growing earnings at 20-30% while their stock prices have halved. That’s exactly the kind of dislocation that creates wealth over 2-3 year timeframes. The multi-baggers of the next cycle have always emerged from this kind of environment. History is very clear on this - the best time to build positions is when nobody wants to touch the market.

But they won’t come to us easily - we need to be actively engaged with the market, looking for sectors and themes with strong earnings growth at reasonable valuations. This isn’t the time to buy an index and forget about it. This is the time for active stock picking, for going through earnings reports, for understanding which businesses are genuinely accelerating and which ones just had a one-off good quarter. The real game is in the work we need to put in now.

The older positions in the portfolio need to be pruned selectively. I use the word selectively deliberately - because some of the sectors, like power and defence, may actually prove to be multi-cycle stories. The structural demand drivers in these sectors go well beyond one cycle. Power demand isn’t going away when you have the data centre buildout, the EV transition, grid modernization and general industrialisation all pulling in the same direction. Defence spending isn’t a one-year phenomenon when the geopolitical reality demands sustained investment. These are decade-long themes with interim corrections, not themes that are over. I may be wrong.

The other big opportunity over the next few years may come from trade deals, especially with the EU and the US. These are massive markets for Indian exports. We’re talking about combined GDPs of over $40 trillion. If meaningful deals come through - and the negotiations are active on both fronts - the impact on export-oriented sectors could be significant. Chemicals, auto components, aerospace, pharma, textiles, electronics manufacturing - all of these could see a meaningful uptick in demand. Trade deals don’t make for exciting daily headlines but when they land, they can re-rate entire sectors. This is something to watch closely.

AI.

I’ve experimented extensively with AI over the past year. Built tools, tried the cutting edge models, and continue to push the boundaries. This isn’t passive observation - I’ve actually built multiple working tools and systems using AI, and the experience of building is very different from the experience of reading about it. When you build, you understand both the power and the limitations in a way that no research report can convey. I wrote about my experiences on X that surprisingly went viral.

I Built 8 Projects With AI in Two Weeks. Here's What I Learned.

AI is a mega theme - but that doesn’t mean AI and ancillary stocks will only go up. That’s too simplistic a way to think about it. What it means is that this undercurrent will give birth to many new winners and losers as the technology evolves. Some businesses that exist today will become irrelevant. New businesses that don’t exist yet will become massive. And many existing businesses will be completely transformed - some for the better, some not. The key is to be on the right side of this shift.

Within IT services, one needs to differentiate between companies that are AI-first and those stuck with legacy models. This is not a subtle distinction - it’s the difference between companies that are fundamentally rethinking how they deliver value to clients and companies that are just adding “AI” to their pitch decks while doing the same old thing. Read the concall of Persistent to understand what an AI-first services company looks like versus the rest. The way they talk about delivery models, pricing, talent strategy, R&D investment - it’s a different conversation altogether. (Standard disclaimer - not a recommendation to buy or sell any specific stock.)

AI is a huge lever for productivity. My sense is that the cost of building software will plummet. What used to take a team of ten people six months can increasingly be done by two or three people with AI tools in a fraction of the time. And when something becomes dramatically cheaper, demand doesn’t stay flat - it explodes. We’ve seen this pattern play out repeatedly in technology. When bandwidth got cheap, we didn’t just do the same amount of internet activity at lower cost - we invented streaming, social media, cloud computing. When storage got cheap, we didn’t just store the same data - we started recording everything. When compute got cheap, we got machine learning. Software will follow the same curve. More software will be built, for more use cases, by more people, in more industries. The implications are enormous.

Intelligent Hardware.

The next leg of this intelligence expansion will be in hardware. This is the bigger thesis and one I think is under-appreciated. We are going to see more and more intelligent devices come into the market - things we can actually interact with in the physical world. Robots that can do useful work in factories and warehouses. Smart manufacturing systems that can adapt in real-time. Autonomous equipment for agriculture, logistics, construction. The software intelligence we’re seeing now is the platform - but hardware is where it meets the real world. And when intelligent hardware starts scaling, the economic impact will dwarf what we’ve seen from software AI alone. We’re already seeing glimpses of this in how AI is integrating with drones in cutting edge defence. Watch this space closely and read widely around it.

Geopolitics

The uncertainty is killing. I haven’t seen this type of geopolitical environment for at least a couple of decades, if not more. The US administration’s unpredictability, the tariff situation, the shifting alliances - it makes planning difficult for businesses, for governments, for investors. One week we’re talking about 25% tariffs on allies, the next week it’s walked back, the week after it’s reimposed with modifications. You can’t build strategy on that kind of noise.

And it’s not just the US. The broader geopolitical picture - US-China tensions, the situation in the Middle East, Europe’s own internal challenges - all of it adds layers of uncertainty. For markets, uncertainty is worse than bad news. Bad news can be priced in. Uncertainty keeps everyone on edge, prevents capital allocation, and suppresses animal spirits.

My sense is this continues through 2026, certainly until the November midterms in the US, and keeps a lid on huge upsides. The midterms could potentially shift the political calculus in Washington and bring some predictability back. But until then, expect the noise to continue. It’s a headwind. It prevents breakout rallies but it doesn’t break the market from here. The Indian economy with the reforms we’ve gone through and the economic momentum even in the worst of these times - is strong enough to provide a floor.

How the whole thing plays out is something no one knows. We have to take it as it comes. The only sensible approach is to focus on what we can control - our portfolio construction, our risk management, our research process - and let the geopolitics play out as it will.

Behaviour

I want to reiterate - this is an opportunity for those who have patient capital and can withstand volatility.

The perceived risk right now is very high. Everyone is bearish, the commentary is negative, portfolio screenshots have disappeared from social media. The WhatsApp groups that were buzzing with stock tips in 2024 are now either silent or full of doom. Mutual fund SIP cancellations are rising. People are asking “should I stop my SIPs?” - which, if you know your market history, is one of the strongest contrarian signals there is.

But the actual risk has reduced significantly given the time correction and price correction we have already undergone. Think about it - two years of sideways to down movement, with 30-50% drawdowns in large sections of the market. Valuations have compressed. Earnings have continued to grow in many sectors. The gap between price and value has narrowed considerably. This is the exact opposite of what the situation was in late 2024 when perceived risk was low (everyone was bullish) but actual risk was high (valuations were stretched). Now the perception and reality are inverted.

If one is prone to leaving the markets in times like these, then frankly they are not cut out for this game. I say this not to be harsh but to be honest. Equity investing requires the ability to sit through 2-3 year stretches of nothing or negative returns. That’s the entry fee. There is no running away from the difficult phases. They are part of the deal. You cannot enjoy the 40-50% up years without enduring the down phases. The CAGR we all chase - the 15-20% compounding over a decade - is a mathematical average of some great years, some terrible years, and some boring years. You have to be present for all of them.

What I know from experience is this - once the cycle turns, the market pays back for the difficult phase with full interest and beyond. The rally off the bottom is almost always faster and more violent than anyone expects. It catches people off guard precisely because they’ve been conditioned by months or years of nothing working. And by the time sentiment turns positive and people feel comfortable investing again, a large part of the move is already done.

The returns are lumpy, not linear. You have to be around for the bump up.

Earnings Digest.

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

1. Power and ancillaries - especially the AI and data centre plays. This includes grid infrastructure, transformers, cables, cooling systems and related equipment. The capex cycle here is multi-year and order books across the chain are strong. The demand drivers are structural - rising power consumption from data centres alone is a massive tailwind, and that’s on top of the broader industrial and urban power demand growth. This sector continues to be one of the strongest themes in the market.

2. Pharma, CDMO and GLP-1 plays - the pharma pack reported well across the board. The CDMO story is structural as global pharma companies outsource more of their manufacturing and development to India. Cost advantages, regulatory compliance improvements, and proven execution capability are all driving this trend. And the GLP-1 theme is just getting started - the TAM for obesity and diabetes drugs globally is staggering, and Indian companies across the API and formulation chain are positioning themselves for a meaningful share. This could be a multi-year tailwind.

3. Auto ancillaries - driven by both domestic demand and an expanding export footprint, with margin expansion as an added tailwind. The China+1 diversification by global auto OEMs is showing up clearly in the order books and revenue numbers of Indian component makers. This is not a one-quarter phenomenon - the structural shift in global supply chains is multi-year and India is a clear beneficiary.

4. Aerospace component manufacturers - a smaller universe of companies but the earnings trajectory is strong and the order visibility is excellent. The defence and aerospace supply chain in India is maturing, and companies that have invested in capabilities over the last 5-7 years are now reaping the rewards with strong order inflows and improving margins. The government push for indigenisation provides further tailwind.

5. Logistics - this sector seems to be seeing a fairly decent turnaround after a rough couple of years. Utilisation levels are improving, pricing is getting more rational, and the structural shift towards organised logistics continues to play out. Companies that survived the downturn and maintained discipline are now seeing the benefits of a cleaner competitive landscape.

6. IT products and services - here’s an interesting one. Across the board, the numbers were actually decent. Revenue growth was reasonable, margins held up or expanded, and deal wins were healthy. But sentiment is terrible. The market is worried about AI disruption, about margin compression from AI-led delivery changes, about the end of the traditional services model. My sense is there’s some overcorrection happening here. Yes, the industry is changing. But there may be some babies being thrown out with the bathwater.

7. Hospitals and diagnostics - continued strong performance. Occupancy rates are high, ARPOBs (average revenue per occupied bed) are improving, and the sector tailwinds are secular - ageing population, increasing health awareness, rising insurance penetration, expanding capacity into tier-2 and tier-3 cities. This is a steady compounder sector.

8. New age businesses - and this is one to watch. There’s been a significant improvement in numbers across the board. Many of these companies are turning profitable or are nearing profitability. Unit economics have improved dramatically from where they were 2-3 years ago. A lot of them are being perceived and punished as SaaS companies - lumped together with the global SaaS de-rating - but many of them are actually platform businesses or marketplace businesses with very different economics. If the numbers continue on this trajectory, the re-rating could be sharp. The market will eventually price fundamentals over narrative.

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Thank you for reading.