2025 - Letter to Clients

 

    2025 was clearly the year of the precious Metals. Both Gold and Silver gave such stunning returns especially in the latter half of the year that investors were just left awestruck by the movement in prices of these two metals. Gold has now been the top annual performer in five of the past ten years, across asset classes. In the Indian context, the past year was a testament to the growing maturity and inherent strength of India's financial ecosystem, marked by a fascinating tug-of-war between global headwinds and domestic resilience.

India Markets

Here is how the various asset classes in India have performed in the past decade

    2025 was the year when the Nifty and Sensex gave positive returns for the tenth consecutive year. The broader market also gave positive returns, although in single digits. Smallcaps however got dragged down and gave negative returns during the year. Although the Midcap index also gave positive returns during the year, many midcap stocks followed smallcap stocks by being in negative territory during the year. 

    A defining narrative of 2025 was the stark contrast in institutional flows. Foreign Institutional Investors (FIIs) were net sellers to the tune of over Rs1.5 lakh crore, pulling money out amid global uncertainties. However, this was more than countered by a tidal wave of domestic money. Domestic Institutional Investors (DIIs) poured in a staggering Rs5.65 lakh crore, supported by record-breaking retail participation, particularly from non-metro regions. This domestic liquidity acted as a formidable shield against global shocks.

    The year had its clear winners. The PSU Bank sector was the undisputed champion, soaring over 28-30%. Other sectors like Metals and Auto also delivered strong double-digit returns, outshining the broader market. The BankNifty index was another standout performer. However, in summary 2025 was a spectacular year for precious metals, with both Gold and Silver significantly outperforming equities, and acting as a safe haven for investors. The primary market also saw a flurry of IPOs during 2025, some of them being already well known names.

    A major morale booster for the markets was the decisive action on monetary policy. With retail inflation moderating to record lows, the Reserve Bank of India (RBI) embarked on a rate-cut cycle, reducing the repo rate by a cumulative 125 basis points throughout the year. This easing of repo rate coupled with rate cuts by the US Fed, injected confidence in the markets.

    

    The continuous injection of liquidity in the markets via lowering of interest rates by the RBI is bound to stimulate credit growth leading to revival of the capex cycle, demand in jobs as well as demand in consumption. Many investors who entered the stock markets in 2024 and are still seeing red in their folio – they can expect to see some relief in 2026.

What to expect in 2026

    

    The consensus view suggests a double-digit growth year in 2026 once again. The primary catalyst for this is expected to be a robust recovery in corporate earnings. The lower interest rate environment inherited from 2025 is expected to start paying dividends in 2026. Cheaper credit is likely to boost demand in rate-sensitive sectors like housing and automobiles. Furthermore, expectations of pro-consumption government reforms, including potential GST restructuring and income tax relief, could put more money in consumers' pockets. After a period of distress, the rural economy is also showing signs of a turnaround, aided by good monsoons and government stimulus. A revival in rural demand is seen as a key theme that could drive growth across several sectors. Finally, a major potential trigger for an outsized rally would be the return of foreign investors. While FII flows remain dependent on global factors like US interest rate cycles and geopolitical stability, India's strong growth story could eventually lure foreign capital back.

    There are some risks to the above scenario. Geopolitical tensions and tariff wars could continue to create market turbulence. Certain pockets of the market, particularly in the small and mid-cap space, may face a correction if earnings don't keep pace with valuations. Finally A sharper-than-expected slowdown in major global economies could dampen sentiment and impact export-oriented sectors.

USA Markets

    The US stock market during 2025 was defined by extreme volatility, record-breaking highs, and a tug-of-war between aggressive trade policies and a massive artificial intelligence (AI) investment boom. Despite a major "flash crash" in the spring, the market ended the year with strong double-digit gains, marking its third consecutive year of growth.

    Here is how the various asset classes in USA have performed in the past seven years

    The Trump administration announced sweeping tariffs (including a 10% baseline and much higher rates for China), at the start of April 2025 triggering the largest global market decline since the 2020 pandemic. The S&P 500 fell nearly 12% in days before rebounding when the administration paused and renegotiated some measures. Artificial intelligence remained the primary engine of growth during the year. The buildout of data centers and the demand for specialized chips saw companies like NVidia lead the bull rally and become te first US company to reach a $5tn valuation during the year. Meanwhile, after battling "sticky" inflation for much of the year, the Federal Reserve cut interest rates three times in the fourth quarter to address a softening labor market. As with other markets, Gold and Silver had a standout year even in the USA – the latter due to its industrial role in green energy and in the AI grid. Bitcoin also hit a lifetime high during the year before settling down by the year-end. 

    The Federal Reserve’s monetary policy remained a central focus. The above graph shows how the Fed has injected liquidity into the system by reducing interest rates by 200bps during the year, even though inflation has not reduced at the same rate. This strategy of front-loading the interest rates can be risky if inflation rears its ugly head once again.

What to expect in 2026

    The consensus view is that 2026 can see high single digit growth in the US. This view is backed by expectations of corporate earning growing much higher than the 10-year average of 8.6%. Further, growth is expected to spread to stocks behind the Fab seven, as they begin to realize productivity gains from AI. Markets are also likely to price in a reduction in trade fiction, as the shock of the 2025 tariffs fade and new trade agreements are finalized. Finally the "One Big Beautiful Act" (tax cuts passed in 2025) will continue to lower corporate tax bills through 2026, acting as a massive fiscal stimulus for US-based companies.

    The risks to the above scenario include the ability of the Fed to keep inflation under control and lower interest rates further, ability of the vast majority if businesses to harvest AI for productivity gains, geopolitical stability and Policy stability by the Trump administration, especially on the tariff front.

2026 outlook

    According to the International Monetary Fund (IMF), the global economy is entering 2026 with a theme of "Tenuous Resilience." While growth is holding steady, it remains below historical averages as the world adjusts to a new era of trade protectionism and shifting industrial policies. 

    As shown in the graph above, except Japan all major economies are expected to grow slightly more than they did in 2025. Global growth is therefore expected to remain relatively flat compared to 2025, with a slight deceleration as the "AI investment boom" begins to normalize and the impact of 2025's trade tariffs fully filters through global supply chains. India remains the fastest growing major economy in the world with DP growth expected at 6.6%. US is expected to grow at 2.1% on the back of domestic demand and tax reforms, although sticky inflation remains a big risk. China is forecasted to grow at around 4.8% as the country struggles to balance its property sector debt with aggressive investments in green energy and high-tech manufacturing. The IMF notes that the 2026 outlook is a potential "Goldilocks" period for specific markets—where inflation is cooling fast enough for central banks to cut rates, but growth remains robust enough to avoid a recession.

Summary

    In summary, 2025 was a sub-par year for Indian investors, and a super year for US investors. While 2026 holds out the promise for continued economic growth, certain global events can derail this possibility. Long term investors should look for opportunities to accumulate quality assets into their portfolio at every possible opportunity and stay invested. Keep in mind that stock picking is a highly overrated skill whereas having the patience to stay invested is highly underrated.

    Meanwhile I am using this occasion to reiterate the fundamentals of long-term investing 

1. Asset allocation – Diversify your financial assets across Debt, Equity, Real Estate, gold, International Equity, etc. depending on your risk profile and age. Real Estate and Gold assets should ideally be used to satisfy consumption needs only. One simple rule of thumb to do this quickly is to subtract your age from 110. The number you get should be the percentage of your assets that you should allocate to equity - the rest should be allocated to Debt and other assets.
2. Financial planning - Identify your financial goals and classify them by time horizon – short term, medium term and long term. Use Debt assets to achieve short term goals, mix of Debt and Equity assets to achieve medium term goals and Equity assets for achieving long term goals. This will be the basis of your financial plan.
3. Reviewing your plan - Review your financial plan yourself or with the help of your advisor ideally once a year and make adjustments to your asset allocation depending on the prevailing market situation.
4. Invest right - When it comes to equity, invest in quality businesses with a reasonable margin of safety and then have the patience to allow the markets to give you returns. This calls for persistence in the face of volatility. Speak to your financial advisor whenever you are in doubt and need a second opinion.

    I also want to take this opportunity to thank you for putting your faith in our investment thesis and in our icAdvisor service with your hard earned money. Your continued trust makes us stay committed to the vision encapsulated in our tagline – ‘Growth through Knowledge’. I am available to address client queries at all times and am approachable via email or whatsapp.

    Finally I wish you and your family a very healthy, happy and prosperous 2026 in the hope that our relationship will continue to strengthen and grow in the years ahead!

Abhijit Talukdar

Founder, Attainix Consulting

SEBI Registered Investment Adviser – INA000006703
Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.