Dear Subscriber,

Welcome to the 2026 edition of Equity Midas Capital’s Subscriber Update. This is our sixth annual update, published after one of the most challenging years for Indian equity markets in recent memory.

2025–26: A Year of Global Shocks and Domestic Reality

When we wrote our 2025 annual letter, we had adopted a cautious outlook. As events unfolded over the next twelve months, that caution proved justified. Markets struggled to build any sustained momentum throughout the year. The previous market peak, reached during September–October 2024, remained unbeaten until February 2026, and even that breakout was short-lived. As we write this update, benchmark indices continue to trade nearly 10% below their all-time highs.

Investor sentiment was also shaken by a series of geopolitical developments. The escalation of the global tariff war reignited concerns over international trade and economic growth, while the Iran conflict pushed crude oil prices sharply higher and increased uncertainty across global financial markets.

For an oil-importing nation like India, higher energy prices raised concerns about inflation, corporate margins and fiscal stability. India also enjoys deep trade and energy ties with the Gulf region. The conflict heightened concerns over disruptions to shipping routes, energy supplies and regional trade, adding another layer of uncertainty for the Indian economy.

Although these events were largely external, they added to the already fragile market sentiment and made investors increasingly risk-averse.

While these global events dominated the headlines, they were not the primary reason behind the market’s weakness. In the long run, stock markets are driven by corporate earnings. Unfortunately, corporate performance during FY2025–26 consistently fell short of investor expectations. Without the support of strong earnings growth, elevated valuations became increasingly difficult to justify.

Corporate earnings are ultimately a reflection of the broader economy. Economic growth, in turn, depends on healthy consumption and sustained investment—both domestic and foreign. From 2014 until recently, India benefited from several structural advantages. Domestic consumption remained resilient, the services sector continued to be a global strength, and manufacturing received a significant boost thru government policies and as multinational companies diversified their supply chains under the China+1 strategy.  This shift gained considerable momentum following the pandemic.

The strength of the economy was also reflected in the stability of the Indian rupee. Between 2014 and February 2020, just before the onset of Covid-19, the rupee largely traded in the ₹60–70 per US dollar range, representing a depreciation of less than 2% per year over nearly six years. This stability, combined with India’s growth prospects, encouraged strong inflows from both foreign direct investment (FDI) and foreign portfolio investors. The absence of long-term capital gains tax on listed equities until 2018 also enhanced India’s attractiveness for equity investors, although the tax was later reintroduced and subsequently increased.

However, as the post-pandemic recovery matured, earnings growth began to moderate while valuations remained elevated. Markets eventually adjusted to this new reality, resulting in the modest negative returns witnessed during IY2025–26.

IY 2026-27 Outlook – Aftershocks… yet Optimism Prevails

Geopolitical conflicts rarely end overnight. Even after the immediate headlines fade, their economic and political consequences often persist for years. The Russia–Ukraine war, for example, was widely expected to conclude within weeks but continues more than four years later. Similarly, while the recent US-Iran conflict may no longer dominate the headlines, its implications for global trade, energy markets and regional stability are likely to remain with us much longer.

The world seems to have realised that the new order is here to stay. Trade wars, tarriffs, actual wars have all fueled the nationalism wave. Nations are placing greater emphasis on strategic industries, supply-chain resilience and domestic manufacturing. Trade negotiations, tariffs and geopolitical alliances are becoming increasingly important drivers of economic policy.

India has navigated these challenges remarkably well. India, while working on trade relations with US and China, took the opportunity to strengthen its trade relations with the rest of the world.  Here is a list of recently Signed and Concluded Pacts:

History has repeatedly shown that periods of structural change create opportunities for countries and businesses that adapt quickly. In my view, India is well positioned to benefit from this changing global landscape. Indian companies are no longer bound by technology, manufacturing processes, geographical reach or production capabilities (except probably in AI). This is the time Indian companies should (and hopefully they will) expand to deliver their services and products across the globe. This is the main reason we remain optimistic about the coming investment year. 

From a market perspective, Indian equities have remained subdued for more than two years. This has helped moderate valuations and reset investor expectations. In such an environment, even modest improvements in corporate earnings could be rewarded more generously by the market than they were over the past two years. While aftershocks from the events of 2025–26 may continue, I believe this is the time for a more constructive investment environment. Accordingly, we remain optimistic about market returns during IY2026–27.

Looking Back – IY2025-26 Review

When the going gets tough, the tough get going!

We are very happy to communicate that our recommendations delivered very good returns (as a group) in a very tough year. The returns confirmed our thesis that markets reward performance irrespective of macro environments. However, the task of identifying companies that can potentially deliver on their market expectations does get a lot more difficult during such periods. EVM managed to do that for IY2025-26. 

From IY2025-26, we decided to do away with our FOCUS product. The reasons were multifold, but the primary reason was that it was a curated list and not the true output of the EVM model. We wanted to ensure that the full list of recommendations be delivered as our recomendations while the subscriber retains the choice of investing in the companies they want to.

Having said that, the performance of larger companies (by market cap) in the portfolio was a source of concern in IY2024-25 and the same continued in IY2025-26. We re-tested the model to identify potential reasons for this underperformance and made a few corrections for IY2-26-27. While the changes are minor in nature, the back tests have shown a good improvement.

Here are some other observations on the year gone by:

1) Emergence of a Theme: This year’s list had a noticeable tilt towards automobile and related companies. This is not unusual. Every year, one sector tends to dominate our recommendations. While the sector changes from year to year, the pattern itself has remained remarkably consistent.

Takeaway: Investment opportunities often emerge in clusters rather than being spread evenly across sectors.

2) Operating Performance Matters: Strong operating performance matters more than we often realize. Our highest-returning recommendation was also the company that reported over 100% growth in EPS. The company with the second-highest return delivered nearly 40% growth in net profit. Over the long run, stock prices tend to follow earnings.

Takeaway: In the long run, earnings growth remains the biggest driver of stock returns.

3) Markets Remain Irrational: Markets often go overboard in both rewarding success and punishing disappointment. Investor psychology plays a much bigger role than many people realize. 

Takeaway: Our focus should remain firmly to identify good businesses. The markets decides the returns.

4) Exits Are Just as Important: Market irrationality does not last forever. Over time, markets correct their own excesses. We have observed that the returns of many of our recommendations tend to falter in the year following our exit recommendation. This is often because strong business performance gets over-rewarded by the market, resulting in valuations that eventually become unsustainable and correct over time.

Takeaway: Knowing when to sell can be just as important as knowing what to buy. EVM adapts a simple process, we sell when we identify a better investment opportunity.

Every year, we carefully review what worked and what didn’t. We know that about one-third of our recommendations tend to underperform the market or even deliver negative returns. Rather than accepting this as inevitable, we see it as an opportunity to improve our research process and reduce the number of such underperformers in the future.

Subscriber Queries

Q1. Can EVM continue to perform effectively as the subscriber base grows, given that many of its recommendations are mid-cap and small-cap stocks?

Ans: We are fortunate to have subscribers who continue to support us and help us grow every year. Over the past five years, our subscriber base has grown to more than three times what it was when we started. With increasing subscriber base and since our recommendation release dates are fixed, this is a very valid question.

The first thing to understand is that we are fully aware of the liquidity limitations associated with mid-cap and small-cap stocks. Liquidity is an important factor in our stock selection process.

Every year, we estimate the total capital that is likely to be deployed by our subscribers. Based on this estimate, we assess whether our recommended stocks have sufficient trading volumes to allow subscribers to build their positions without significant difficulty. If we recommend a stock with relatively lower liquidity, we clearly advise subscribers to stagger their purchases over a few days.

As our subscriber base grows, we have several ways to address this challenge:

• Select stocks with higher trading liquidity.

• Recommend staggered buying over 2–5 trading days.

• Cap new subscriber additions if liquidity becomes a concern.

• Increase the number of recommended stocks to spread the capital across a larger set of companies.

Our objective is to ensure that any measures we adopt to manage liquidity do not compromise the quality of our recommendations or their return potential.

Q2. Why don’t you publish the EVM rankings or assign recommended weightages to the stocks?

Ans: Mathematical models are, by their very nature, precise. However, precision and accuracy are not always the same.

The EVM rankings are based on the past behaviour of companies and the stock market. While history provides valuable insights, there is no guarantee that markets will behave the same way in the future. We therefore use the rankings as a filter to identify attractive investment opportunities, not as a tool to rank one recommendation above another.

Once a stock qualifies for our recommendation list, our conviction across all the recommendations remains broadly the same. We do not believe we have a reliable mechanism to rank these stocks further or assign meaningful weightages to them.

Although SEBI permits Research Analysts to publish model portfolios, we have consciously chosen not to do so. Instead, we present our recommendations as individual investment ideas, allowing subscribers to make their own informed decisions based on their financial goals, risk appetite and existing portfolio.

By assigning ranks or weightages, we believe we would be influencing your investment decisions more than is appropriate. We would rather provide our best research and let you decide how each recommendation fits into your portfolio. This is also why we publish our views on the market long after releasing our recommendations. We do not want our market outlook to consciously or subconsciously influence your investment decisions or the way you evaluate individual recommendations.

Thank you & Regards,

Ashish Arole