After nearly a year and a half of relentless selling pressure, weak sentiment and persistent uncertainty, Indian equity markets are suddenly showing signs of life. A sharp gap-up opening, driven by short covering and improving global cues, has sparked a fresh debate among investors: Is this just another relief rally, or has the market genuinely turned a corner?
Market veteran Madhusudan Kela, founder of MK Ventures and one of India’s most closely followed investors, believes this move is far more than a temporary bounce. In his view, markets have entered a new phase — one where investors should gradually shift from a “sell-on-rise” mindset to a “buy-on-declines” strategy.
Speaking amid improving sentiment following the India–US trade breakthrough, Kela explains why currency stability, changing fund flows, and structural policy shifts could power the next leg of gains — even as selectivity remains critical.
📉 From Distress to Direction: What Changed in the Market Mood?
For months, Indian markets struggled under the weight of multiple headwinds. Slowing growth, stretched valuations, geopolitical tensions, and aggressive foreign institutional investor (FII) selling created a vicious cycle of negative sentiment.
According to Kela, the market wasn’t just correcting on numbers — it was trapped in a psychological downtrend.
“The market was clearly in distress mode,” he notes. “Growth concerns, valuation worries, geopolitical uncertainty — everything came together at once. Add to that a market that simply refused to move higher, and sentiment kept spiralling down.”
The recent India–US trade clarity arrived precisely when pessimism was peaking. Rather than triggering irrational exuberance, Kela believes it helped resolve deep-rooted uncertainties that had been bothering investors for months.
Key concerns that now appear to be easing include:
- The future trajectory of India–US economic relations
- Fears of sustained FII exit
- Rising geopolitical risk premiums
- Currency volatility and macro stability
“This is an inflection point — both for India and for the market,” Kela says.
💱 Why the Rupee May Be the Real Market Trigger
Among all the factors influencing sentiment, Kela identifies currency stability as the single most important driver for the next phase of the rally.
The Indian rupee’s recent move closer to the 90 mark against the US dollar has caught the attention of global investors. For foreign funds, a stable currency often matters more than short-term index performance.
“Currency is the biggest factor,” Kela stresses. “Once foreign investors see stability in the rupee, money starts flowing back.”
Over the past 18 months, global funds have consistently sold into rallies, leaving many portfolios significantly underweight India. At the same time, short positions have built up across the market.
With the rupee stabilising and macro risks easing, Kela believes incremental buying is now inevitable, supported by:
- Short covering by traders
- Gradual re-entry of FIIs
- Domestic investors stepping in from the sidelines
This combination, he says, marks a clear transition from a defensive market to a buy-on-declines environment.
🔄 From “Sell on Rise” to “Buy on Dips”
One of Kela’s strongest observations is about the change in market behaviour.
For over a year, rallies were used as exit opportunities. Both institutional and retail investors remained cautious, choosing to book profits quickly rather than deploy fresh capital.
“That phase is over,” Kela asserts.
“Even domestic investors are light on positions. The market had become sell-on-rise. Now we are clearly moving into a buy-on-declines market.”
This shift does not mean markets will move up in a straight line. Volatility will remain, but the character of corrections has changed — from reasons to exit, to opportunities to accumulate quality businesses.
🏛️ A Structural Tailwind: Buybacks Get a Boost
Beyond sentiment and flows, Kela points to a quiet but powerful structural change introduced in the Union Budget: revised taxation on buybacks.
Earlier, companies faced tax friction while conducting buybacks, making dividends the preferred route for surplus cash distribution. Under the new framework:
- Companies no longer pay tax on buybacks
- Shareholders are taxed only when they tender shares
This change, Kela believes, will encourage more aggressive buyback activity over the next one to two years.
Why does this matter?
- Buybacks improve capital efficiency
- They signal management confidence
- They support valuations, especially during consolidation phases
“For investors, this creates an additional layer of downside protection,” Kela explains.
🏭 Small and Midcaps: From Ignored to Interesting?
One of the most striking outcomes of the prolonged correction has been the neglect of small and mid-sized companies. Many fundamentally sound businesses saw little to no investor interest over the past 18 months.
That, Kela believes, is starting to change.
Reports suggest that several businesses have already changed ownership, with strategic and long-term buyers stepping in. Unlike short-term market participants, these buyers are willing to pay fair value when they see sustainable growth potential.
“When strategic capital enters, it unlocks value that markets had ignored,” Kela says.
This trend could gradually re-rate select midcaps, especially those with:
- Strong balance sheets
- Consistent cash flows
- Clear growth visibility
🌍 Which Sectors Could Lead the Next Leg?
While export-oriented companies may be early beneficiaries — especially after tariff-related concerns eased — Kela does not see this rally as narrow or sector-specific.
Potential leaders include:
- Exporters gaining from global trade clarity
- Large-cap energy and infrastructure players
- Conglomerates benefiting from easing risk perception
The key driver, he says, will be broader participation — from both returning foreign capital and domestic investors who stayed cautious during the correction.
⚠️ The One Big Risk: Supply of Equity
Despite his constructive outlook, Kela issues a clear warning: investors must respect supply dynamics.
With markets stabilising, companies and promoters may look to:
- Raise capital
- Conduct stake sales
- Execute block deals
This increase in equity supply can cap near-term upside in certain stocks.
“Be selective,” Kela advises. “Know what you’re buying and why you’re buying it.”
🔍 Where Is the Real Value Now?
Kela’s approach remains firmly bottom-up.
While large companies will continue to perform, he is personally focusing more on mid-sized businesses that:
- Have corrected sharply over the last two years
- Offer favourable risk-reward
- Possess long-term compounding potential
“Size does not matter to me,” he says. “Business quality and longevity do.”
⏳ Market Cycles Don’t Lie
History, Kela reminds investors, follows a pattern.
After every major peak, markets typically go through a 13–19 month consolidation phase. Once this phase ends, markets stabilise, grind higher, and only much later enter a frenzy stage.
“The best buying opportunity is always at the end of a correction — not at the top,” he says.
By that measure, Kela believes portfolio building should begin now, even if volatility persists.
✅ Is the Bottom Really In?
Kela’s answer is unequivocal.
“Yes, I am very clear about this.”
Risks will always exist — geopolitical events, global shocks, unexpected data. But from here on, Kela believes declines should be viewed as opportunities rather than threats.
“Even if prices fall, I will not hesitate to buy quality businesses.”
📌 Final Takeaway
The recent market gap-up may have been triggered by short covering, but the underlying shift appears deeper. Currency stability, easing global concerns, structural policy support and changing investor behaviour suggest that Indian markets may have finally put the worst behind them.
For long-term investors, the message is clear:
The era of fear-driven selling is fading. The phase of disciplined, selective buying is beginning.
The Founder of Fresh Rise and a global educator, a digital news platform focused on delivering clear, verified, and meaningful stories that matter to everyday readers. I write about current affairs, government schemes, education, social issues, and global developments, presenting complex topics in a simple and easy-to-understand format.
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