Market euphoria is over. Best time to buy stocks after COVID

ELI5 / TLDR

S. Naren says the euphoria is gone but don’t expect 2020-23 returns either — this is a moderate-return world (nominal GDP, maybe nominal GDP + 2%, not 25% per annum). ICICI Prudential’s proprietary valuation indicator just flashed green for the first time since COVID, triggered by savage FII selling in March 2026. FIIs are in despondency, domestic investors in anxiety, debt is the most despised asset class (so the most attractive), gold is fine but silver is a small-cap masquerading as money. The boring takeaway: it’s a great time to start an SIP — not a great time to time a bottom.

The Full Story

The map: where each asset sits on the cycle

Naren walks through what he calls “pucks” — placing each asset class on the cycle wheel of despondency → anxiety → relief → thrill → euphoria → fear → panic.

FIIs on India: despondency. Two years of zero dollar returns will do that.
Domestic institutions on equity: anxiety. Still believers in India long-term, hence sticky SIP flows. Could swing either way.
Small caps: despair (FIIs) / anxiety (domestics). Got crushed not by panic but by IPO supply — promoters and PE saw the 2024 froth and dumped paper into the market. The money came in; it just got soaked up by issuance.
Mid caps: still expensive. Only ~150 names, FIIs aren’t sellers, and domestic SIPs keep bidding. No correction trigger visible.
Debt: despondency. Try telling someone after two years of flat equity to go buy a bond and watch their face. Which is exactly why Naren likes it — the residual asset class used to be gold, this cycle gold ran, so debt got the cold shoulder by default.
Gold: anxiety, not euphoria. Plays a role when geopolitical trust breaks down. Worth an allocation, not zero.
Silver: euphoria. Naren is blunt — silver isn’t an asset class. The float is too small. “It’s a small cap stock.” Allocation should be zero.
US tech: still euphoric. ICICI Pru called it a year ago and was wrong; $3T became $5T, and AI IPOs are queued up.
IPOs: the euphoria is over. Loss-making companies can no longer raise easily. Fear-adjacent.

The green light

The proprietary indicator (PE, P/B, market cap to GDP, G-sec yield blended) flashed green on March 30, 2026 — first time since COVID. Naren is candid about why. It wasn’t earnings. It wasn’t valuation gradually grinding lower. It was one of the largest FII selloffs ever in a single month.

If you just look at the flow parameter of March 2026 it will show as one of the biggest selloff by FIIs ever. So that is the reason why the indicator came to green.

He’s careful not to oversell it. The indicator doesn’t price the global geopolitical environment, doesn’t see where other markets are in their own cycle. So green means “not expensive” — not “load up.”

Why returns will be moderate

Two reasons valuations alone don’t pull him bullish:

World market cap to GDP is near record. US tech euphoria sets a high water mark globally.
Corporate profit to GDP in India already shot up 2020-24. It dropped through 2010-20, then re-rated hard. From here, profits ripping ahead of GDP is mechanically difficult.

Long-run Indian equity return = nominal GDP + 2%. Naren thinks the next 3 years could be just nominal GDP, with some derating.

To expect big returns like what happened between 2020 and 23 is unlikely at this point of time.

Earnings: not the great cycle, just a rebound

The 2020-23 boom started from a depressed base — financials in particular had near-zero profits. That setup is gone. FY27 will carry the cost shocks and supply chain pain of the current geopolitical mess; FY28 should be cleaner. But “drastically change” is off the table.

Where will earnings come from? Services, mostly — financial services, IT services, anything consumption-adjacent. Pharma, FMCG, retailing have headroom (retail profits are very low). Manufacturing maybe takes off on a 5-year view if global trust shifts toward India.

Naren is wary of contract manufacturing — “200 PE supporting manufacturers” don’t deserve those multiples. On defense he gives valuation-conservatives the bad news: the macro is too strong, no country can defund defense in this environment. His colleagues bought it; he found it harder. If forced to pick one theme: exports, currently down 34%, because India needs to fund oil imports somehow.

What Naren actually worries about

Two risks. Geopolitics — already partly played out: oil up 40%, the largest oil rally in memory, hit the market in March. Done.

The unknown one: AI’s impact on Indian IT services and GCCs. The whole India 2030 thesis hinges on services not getting hollowed out. Naren’s working assumption: Indian IT will have to re-engineer but will keep growing, GCCs won’t degrow because India is too competitive on services. If that’s wrong, the growth story has a problem. He admits he doesn’t know.

The flip side, channeling Howard Marks on second-derivative impact: COVID showed that more work could be done offshore than anyone thought. AI might extend that further — more work moving to India because Indian capability finally has machine leverage.

The cycle indicators he actually uses

Asked for the math, Naren doesn’t pretend it’s a model. It’s three things:

Flows. January 2026 saw gold + silver ETF inflows equal to equity ETF inflows for the first time ever. Sitter signal of a top.
Valuation. PE, P/B, market cap to GDP.
Conversational pressure. When every investor at every event asks “should I buy silver?” — that’s the indicator. December 2008 nobody wanted equity; that’s when you wanted equity.

On AI replacing fund managers: behavioral finance only works if humans are still the decision-makers. If machines start dominating flows, the greed/fear pattern may not hold. He doesn’t pretend to know — pointing to Renaissance and CTA funds as proof that non-fundamental approaches can work for reasons no one can fully explain.

The SIP gospel

The pitch: SIPs need three things to work — volatility, valuations that aren’t extreme, and conviction in 5-10 year markets. April 2026 has all three. After two years of poor returns followed by a real drop, the SIP investor’s temperament has finally been tested for real (the 2022 Russia-Ukraine wobble lasted days, not months). And distributors say there’s still no anxiety. People are asking whether to increase SIPs.

His one pleading rule: don’t start SIPs in whatever just ran. (Read: don’t start a gold/silver SIP after January 2026.)

Definition of a good fund manager

Two filters:

Don’t measure at extremes. Don’t judge a Chinese fund manager at the China bottom; don’t judge anyone at the top of their market.
Long horizon. Period.

The process of measurement cannot happen when the markets are irrational.

His own model: scale

The interviewer pushes Naren on his investing model versus the canonical names — Buffett, Munger, Marks, Bezos. Naren reframes. ICICI Prudential’s edge isn’t a stock-picking style; it’s the ability to manage huge scale (~10 lakh crore) with discipline. Small sector funds can deliver hero returns; they don’t move the needle for society. The goal is reasonable returns at scale. That’s the constraint that shapes everything.

What won’t change

Bezos’s question — what’s permanent? Naren’s answer: investor behavior. People focus on performance at the top, risk at the bottom. Everyone knows asset allocation but in January 2026 they piled into gold and silver at the peak. That’s not changing.

Key Takeaways

ICICI Prudential’s valuation indicator flashed green March 30, 2026 — first time since COVID. Driver was historic FII selling, not gradual cheapening.
Expect nominal GDP returns from Indian equity over 3 years, not nominal GDP + 2%. Some derating likely.
Asset class map: debt (most attractive, despondency) > gold (anxiety, allocate something) > equity broad (moderate) > mid caps (still expensive, no trigger) > silver (zero allocation, “small cap stock”) > US tech (still euphoric).
Small caps got hit by IPO supply, not panic. Mid caps have no correction trigger while SIPs flow.
Corporate profit to GDP already shot up 2020-24; mathematically hard for it to keep outpacing GDP.
Earnings: FY27 weak (current pain still feeding through), FY28 should be cleaner. Services-led growth — financials, IT, pharma, FMCG, retail.
One thematic bet if forced: exports (currently -34%). Manufacturing is a 5-year story.
Defense: macro is too strong to fade despite expensive valuations.
Contract manufacturing: still skeptical, especially anything trading at consumer-stock multiples.
Biggest known risk: AI impact on Indian IT/GCC. The India 2030 thesis depends on services holding.
Best time to start an SIP — volatility present, valuations not extreme, long horizon intact. Don’t SIP into whatever just ran (i.e., gold/silver).
Cycle indicators that matter: flows, valuation, conversational pressure at investor events.

Claude’s Take

Naren doesn’t sell a thesis, he sells a temperament. The substantive calls here aren’t dramatic — moderate returns, services lead, exports interesting, debt overlooked, defense a reluctant hold. What’s useful is watching how he triangulates. The indicator went green not because he’s bullish but because mechanical inputs say “not expensive.” He immediately discounts that with the qualitative overlay (geopolitics, world MCAP/GDP). That gap between the model and the call is where most retail investors get burned, and he’s open about it.

The corporate profit to GDP point is the load-bearing argument. If you accept it — the ratio dropped a decade then ripped four years — you accept the moderate-return thesis automatically. Earnings can’t drastically outpace GDP from here without another base effect, and there isn’t one waiting.

The silver-is-not-an-asset-class line is the most useful thing in the interview. The float-too-small framing makes it impossible to unhear. It also doubles as a general filter for any “asset class” that exists primarily because of inflow narratives.

Where he’s hedging hard: AI’s impact on Indian services. He’s not catastrophizing but he’s flagging it as the unknown that could break the thesis. The wishful counter — that AI extends offshorability the way COVID did — is honest but thin.

Score: 8. Specific, concrete, doesn’t oversell. The IPO-supply explanation for the small-cap drawdown alone is worth the runtime — it reframes the correction from sentiment-driven to mechanical. Knock half a point because the interview format leans hagiographic at the end and some answers stay generic (the “good fund manager” question got a textbook reply). Still, this is the kind of conversation where the framework is the takeaway, not the prediction.

Market euphoria is over. Best time to buy stocks after COVID | S. Naren Explains