Is The Bull Market Back? — shantum's notes

ELI5 / TLDR

Indian companies just posted a strong earnings season, but the headline indices like the Nifty are still down from their 2024 peak. The reason: the big famous names that make up the index (Reliance, HDFC Bank, TCS) have grown too large to grow fast anymore, so they’re dragging the index sideways. Meanwhile the real growth is happening in smaller companies outside the index — defence, capital goods, pharma, electrification, new-age tech. So is the bull market back? Sort of. It’s a very selective one: a handful of sectors are flying while the old giants stall.

The Full Story

This is SOIC’s quarterly results wrap-up — a top-down scan of how Indian companies did this earnings season, plus a thesis about which way the market is leaning.

The earnings season was genuinely good

Out of roughly 1,420 companies that reported, the median profit growth came in around 23%, with median revenue growth near 15%. The host calls it one of the best seasons since September 2023. But the strength was lopsided across company sizes. Think of the market as four buckets stacked by size:

Nifty 50 (the biggest): median profit growth only ~10%
Nifty Next 50 / Midcap: ~22-23%
Smallcap 250: ~16%
Microcap 250: ~28% — the fastest of all

The pattern is clear: the smaller the company bucket, the faster the earnings. The giants grew slowest.

Why the giants can’t sprint anymore

Here’s the core argument. The Nifty 50 is dominated by a few enormous companies — Reliance (~₹18 lakh crore market cap), HDFC Bank, TCS, ICICI, SBI, Bharti, Bajaj Finance. For a company already worth lakhs of crores, showing 20% profit growth is mathematically hard. As the host puts it, these are “winners of yesterday” — the champions of past cycles who are now too big to compound quickly. (TCS’s headline 12% growth, he notes, is partly a dollar-depreciation illusion; in constant currency it actually shrank.)

The constituents of the index will get changed over five to ten years, and some of the names which are outside the index will start becoming a part of the index.

Market cycles run roughly ten years

A useful frame he offers: India’s market leadership rotates about every decade.

2000–2010 — infrastructure, real estate, capex, power. Stocks ran up 300-400x, then PSU bank balance sheets cracked and the cycle died.
2011–2020 — consumption. Bajaj Finance, HDFC Bank, Kotak, paints — the consistent compounders.
Post-2020 — a shift toward self-sufficiency and “make in your own country.” Covid’s supply-chain shock, plus the Ukraine-Russia and Iran-Israel wars, pushed every nation toward onshoring: Make in India, Made in USA, China+1. (He recommends two books to understand this: Chokepoints by Edward Fishman and The Power of Geography.)

Where tomorrow’s winners actually live

The video’s punchline: the fastest-growing companies sit outside the headline index. Manufacturing and industrials are running non-stop — not just in India, but worldwide. Auto components, engineering, defence, healthcare, electrification, EMS (electronics manufacturing), capital goods — most of these names you won’t find in the Nifty 50 or even the Nifty 500.

He runs through a long list of standouts: pharma (Shilpa Medicare, Sequent Scientific, Vimta, Gland), defence (Astra Microwave, Apollo Micro, Krishna Defence), jewellery (Thangamayil, with 12% volume growth vs flat peers), cables and wires (R R Kabel, Universal Cables), rooftop solar (Fujiyama), music licensing (Saregama, Tips — back after years of flat numbers), and more. The common thread: companies that quietly invested in capacity for a decade and are only now seeing operating leverage kick in as utilization rises.

So is it a bull market?

His verdict: yes, but a “very selective” one. Genset, defence, capex sectors are flying. Meanwhile IT, consumer staples, PSU banks (rising treasury losses), and autos are consistent laggards. The US market shows the same concentration — its returns are coming almost entirely from semiconductors and energy, while software, healthcare, financials and consumer are all down 20-40% over the past year.

The one cloud on the horizon

Reading the conference calls, he flags a margin risk: in the current quarter, crude prices, an LPG crisis, and the state of war could squeeze manufacturing margins. If the Iran-US tension resolves, the market shrugs it off. If not, expect volatile times ahead.

Key Takeaways

Q4 earnings: ~1,420 companies, ~23% median profit growth, ~15% median revenue growth — one of the strongest seasons since Sept 2023.
Earnings growth scales inversely with size: microcaps ~28%, midcaps ~22%, smallcaps ~16%, Nifty 50 only ~10%.
The Nifty 50 and Nifty 500 peaked around September 2024 and are still down ~10% and ~6% respectively, because the mega-cap constituents are too large to grow fast.
Market leadership rotates on a roughly ten-year cycle: infra/real estate (2000s) → consumption (2010s) → manufacturing/self-sufficiency (2020s).
“Tomorrow’s winners” — defence, capital goods, EMS, electrification, new-age IT/SaaS, exchanges, brokers — mostly sit outside the major indices.
Index composition typically reshuffles every 25-30 years; the host expects current outsiders to enter the Nifty over the next 5-10 years.
Operating leverage is the recurring story: firms that invested in capacity for 10 years are now inflecting as utilization rises (Shilpa Medicare’s margins went from negative to ~17%).
US returns are concentrated in semis and energy; most other US sectors are down 20-40% over the trailing year.
Near-term margin risk for Indian manufacturers from crude/LPG/war; resolution of Iran-US tension is the swing factor.

Claude’s Take

This is a competent, data-grounded quarterly review — exactly what SOIC does well. The central insight is real and worth internalizing: index returns and stock returns have decoupled. A flat Nifty can coexist with a roaring market in midcaps and microcaps, because the index is weighed down by yesterday’s champions who’ve simply gotten too big. That’s a genuinely useful mental model, and the decade-cycle framing (infra → consumption → manufacturing) is a clean way to think about rotation.

Two cautions. First, the “winners are outside the index” thesis is also the bull case for exactly the small-and-microcap names where valuations are stretched and survivorship bias runs hottest — triple-digit profit growth off a tiny base is easy to find and easy to extrapolate too far. He acknowledges these are often pre-profit or thinly-covered stories, which is honest, but the list-of-names format can read like a watchlist dressed as analysis. Second, this is a promotional vehicle — there’s a long mid-roll pitch for the SOIC membership and “Stock Scans” tool, and the company examples double as advertisements for what the paid product surfaces.

Score 6: solid framework, real data, useful cycle model, but it’s a surface-level scan rather than deep analysis, and the soft-sell undercuts it. Worth watching for the top-down lens, not for any single stock call.