PNN
New Delhi [India], August 25: There was no crash. That, more than anything, is why this market gets so little credit for what it has come through. For the better part of two years the Nifty simply moved sideways, and it is easy to forget that Indian shares spent that time absorbing one blow after another, with almost every major economic factor turning against them at the same time. They did not break. And in the last few weeks, quietly, they have started to move: the index has pushed through 24,500 and is now consolidating in the 24,600-24,800 area.
Consider what this market has faced. The rupee slid to an all-time low of 96.84 to the dollar in May, and is still around 9 per cent weaker than a year ago. Crude oil has been violent in both directions -- Brent fell to $69 a barrel in early July after the United States and Iran signed a memorandum of understanding, then spiked to $105 within three weeks as attacks on tankers near the Strait of Hormuz resumed. Tariffs and trade disputes unsettled exporters. Foreign investors sold relentlessly: they have taken about ₹2.41 lakh crore out of Indian shares so far in 2026, more than they withdrew in all of 2025. And patches of genuinely weak company profits made 2025 a year in which India lagged behind other global markets. Any one of these would have tested a market. They all arrived together.
The most useful thing this period has done is bring valuations back to sensible levels. Two years ago, Indian shares were priced as though nothing could go wrong, leaving no room for disappointment. What followed was what we would call a time correction: company profits kept growing while share prices stayed flat, and the excess quietly drained away. India has always been more expensive than emerging markets as a group -- and, in our view, has earned that. Today that gap is close to its narrowest in twenty years. The Nifty trades at roughly 21 times expected earnings, at or slightly below its own ten-year average, which makes India one of the few large markets in the world priced below its own history. Investors are being asked to pay less for each rupee of Indian profit than at almost any time in two decades.
Why that gap opened is worth understanding. The recent rally in emerging markets has been unusually narrow: a handful of large chipmakers in Taiwan and South Korea accounted for most of the gains. India was never part of that trade. So its relative cheapness says less about the health of Indian companies than about where global money chose to crowd. If the AI-led trade cools down -- or simply widens out -- India becomes one of the more obvious homes for money looking for profit growth outside the chip sector.
That is why the turn in foreign flows matters, and it is the clearest change since we last wrote. The selling has not merely slowed; it has reversed. Buying picked up through July and has carried into August, with foreign investors putting roughly ₹12,900 crore into Indian shares in the first week of the month alone. Most of that came through the open market rather than through new issues, which tells us this is real interest in listed Indian businesses rather than a scramble for allotments. Foreign ownership of Indian equities is still low by past standards, so there is room for a good deal more.
We take a similar view of the currency, and here too the evidence has moved our way. Most of the rupee's fall, we believe, is behind it. The measures announced in June to attract foreign money have brought in substantial inflows, and the Reserve Bank has used its dollar sales to smooth the path; the rupee has recovered to around 95.3 and is modestly stronger than it was a month ago. The pressures have not vanished -- a large oil import bill will see to that -- but with reserves adequate and the external position manageable, we expect the currency to stay broadly steady rather than resume its slide. That is a considered view, not a certainty.
The gloom around the index also hid something important: this was never a market without opportunity. Beneath a flat headline number, leadership kept rotating. Autos and consumer stocks led for stretches; at other times it was selected financials, capital goods, or a reviving IT sector. More recently, mid- and small-sized companies have been doing better than the headline index. A flat index is not a flat market, and telling the difference is precisely our job.
Underneath all of it is a resilience that now looks structural rather than lucky. The Reserve Bank left the repo rate unchanged at 5.25 per cent on 5 August, with all six members voting together; more tellingly, it raised its growth forecast for this financial year to 6.7 per cent while trimming its inflation forecast to 5 per cent. Growth has slowed from its recent peak but remains among the fastest of any large economy. And a deep pool of domestic money -- much of it arriving every month through SIPs -- has absorbed the foreign selling instead of giving way to it, with domestic institutions buying well over ₹4 lakh crore of shares this year.
The June-quarter results have now largely settled the question we were still waiting on in July. They came in far better than feared. Profits across the market rose about 2 per cent from a year earlier, against expectations of a 10 per cent fall; strip out the oil marketing companies, which took the brunt of expensive crude, and profits grew around 17 per cent. Banks and financial companies (up about 20 per cent), metals, technology and autos did the heavy lifting. Sales growth was healthy across the board, and management commentary sounds confident rather than defensive.
The risks are real, and we manage the portfolio accordingly. Crude is the obvious one: the Strait of Hormuz is not yet fully reopened, and another flare-up would push up input costs, squeeze margins and revive pressure on both inflation and the rupee. Some economists expect the Reserve Bank to have to raise rates in the next six to twelve months if energy costs stay high. These are live concerns, not footnotes.
But let us be plain about where we stand. A market that has absorbed two years of near-continuous adversity, come out more sensibly priced than at almost any point in twenty years, and is now seeing profits beat expectations is not a market to own less of than usual. Caution has been the consensus position on Dalal Street, and that consensus has already paid for it. In July we wrote that the re-rating would not wait for the mood to improve. The first leg of it has now arrived -- foreign money is returning, the currency has steadied, earnings have surprised on the upside -- and sentiment still has not caught up. Those who wait for full confirmation will buy the same earnings at a materially higher price. We would still rather own this market before the news is good than after.
The views expressed are the authors' own and do not constitute investment advice. Market data referenced is as of 12 August 2026. Investments are subject to market risks; please read all scheme-related documents carefully.
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