At Truemind Capital, our broad understanding has been:
- Equity markets will underperform owing to pricey valuations
- Short-duration debt funds will perform better
- Gold could be a good portfolio hedge
Positioning our client portfolios based on these expectations allowed us to yield positive returns, which neither benchmark indices nor longer-term debt funds could.
Equity Market Insights:
Equity markets have remained volatile over the past year, marked by corrections and short-lived recoveries. After a sharp five-month correction from October 2024 to February 2025, markets slowly recovered, only to see another round of volatility. For the quarter ending September 2025, the BSE Sensex slipped around 4% and is down about 5% over the past year, with mid and small-cap indices seeing steeper declines.
Globally, US equities remained buoyant with the S&P 500 touching lifetime highs, supported by continued strength from mega-cap stocks.
What’s notable this time is India’s relative underperformance versus global peers. It’s unusual to see India as the only major market delivering negative returns over the last 12 months, while most developed and emerging markets stayed positive. India’s valuation premium to global equities, at 9%, is now below its 10-year average of 15%, reflecting strong foreign outflows and reduced index weights through the year.
Now, do these lower prices mean Indian equities are attractively valued? Not quite yet. Valuations have eased from elevated levels, but they’re still not cheap. And while there are green shoots visible in the form of better-than-expected GDP print for Q1 FY26, benign inflation, strong support from domestic institutional investors and supporting government policies, what will truly drive markets is corporate earnings growth.
Nifty 500’s aggregate quarterly PAT growth%, which touched 50% plus at the start of FY24, declined sharply to -1% in the middle of FY25. More recently, corporate profit growth has begun to recover, registering quarterly increases in the range of 8-10%. Going forward, we expect growth to be at subdued levels. If earnings level has moderated versus the previous peak phase, it’s important for investors to keep expectations realistic- the extraordinary market returns of the past few years are unlikely to repeat in the coming years.
In the near term, two key factors will shape the outlook: (a) a revival in consumption, and (b) progress on the India–U.S. trade agreement. Despite three major policy moves this year- income tax cuts in the Union Budget, RBI rate cuts, and GST rate reductions, markets haven’t yet turned decisively positive. The upcoming festive quarter will therefore be crucial in testing whether these measures translate into higher consumer demand. On the external front, ongoing tariff-related discussions have continued to add noise, so a trade resolution would be a major relief.
At present, given the heightened global uncertainties and stretched valuations, it’s prudent not to be overexposed to equities (refer to our suggested asset allocation). Within equities, we continue to prefer large-cap, value-oriented portfolios over aggressive growth themes and mid & small-cap schemes. This approach has served our clients well, delivering superior results, especially during the last one year when benchmark indices gave negative returns.
We also maintain a selective exposure to China, especially in the technology sector, on the back of continued global dominance, attractive valuations and diversification purposes.
Debt Market Insights:
With the RBI kick-starting the rate-easing cycle earlier this year, yields have softened across most fixed-income products. Typically, when interest rates move lower, long-duration bonds tend to outperform. However, we’ve consciously avoided taking exposure to such funds, as we assessed that shorter-duration strategies will offer better risk-adjusted returns.
Remember, the primary role of debt in your portfolio is to bring stability and not add unwarranted volatility. In fact, during CYTD 2025, long-duration funds have not only been more volatile but have also delivered weaker returns compared to shorter-duration counterparts.
Despite significant rate cuts that should have lifted bond prices, long-term bonds have faced selling pressure. The 10-year government bond yield has remained range-bound near 6.5%, suggesting limited upside from extending duration. With long-end yields unlikely to fall sharply, we continue to prefer shorter maturities.
In its October 2025 policy, the RBI kept the repo rate unchanged at 5.5%, maintaining a neutral stance to balance growth and financial stability. Although inflation has cooled to around 2.6%, the central bank seems to be in a wait-and-watch mode before cutting rates further implying that yield volatility may persist in the medium term.
Meanwhile, the short end of the yield curve remains stable and well-supported by robust demand for CDs and CPs, along with improved liquidity conditions following the CRR unwind and upcoming government spending.
From a post-tax perspective, arbitrage funds continue to be an attractive option for investors in higher tax brackets. These funds deliver debt-like returns with a spread over repo rates and enjoy favorable taxation. Depending on short-term liquidity needs, combining arbitrage funds with ultrashort-term debt funds helps enhance both stability and flexibility within portfolios.
Other Asset Classes:
Gold has been the standout performer of 2025 so far, delivering the highest month-on-month returns among major asset classes. Gold BeES gained nearly 20% in the Sep’25 quarter and an impressive 51% over the past year, fuelled by a mix of global macroeconomic uncertainty, central bank buying, and expectations of lower interest rates worldwide.
As we’ve consistently emphasized, keeping a strategic 10–20% allocation to gold adds meaningful resilience to portfolios, especially during times of global volatility. The recent rally has once again reinforced the importance of gold as a long-term diversifier rather than a trading asset.
On the other hand, India’s real estate market has shown signs of cooling. Prime residential sales are falling largely due to rising prices and affordability challenges. New project launches also slowed as global uncertainty dampened sentiment. Developers, however, continue to find steady demand in the premium housing segment, which remains relatively insulated.
That said, valuations across most real estate markets have turned expensive. We are advising clients to avoid fresh property purchases for now and maintain a disciplined allocation of no more than 20–25% of the total portfolio to real estate. Given its inherent illiquidity, long holding periods, and cyclical nature, real estate should be viewed as a complementary and not dominant component of one’s overall wealth strategy.
Truemind’s Model Portfolio – Current Asset Allocation
Personal Finance Capsule:
Buy and hold doesn’t ensure outperformance
Should you still invest in Gold at current prices?
