Beyond Geopolitics: Why Earnings and Market Breadth Will Drive Equities

As global markets navigate shifting geopolitical tensions, investors are increasingly looking for stability beyond headlines. Devina Mehra, Founder & CMD of First Global, suggests that while major deals like a potential Iran–US agreement may reduce uncertainty, they will not be the primary engines of growth for Indian equities.

Shifting Focus from Headlines to Earnings and Breadth

According to Mehra, the direction of the Indian market will increasingly be dictated by fundamental drivers: earnings trends, liquidity cycles, and investor positioning. While geopolitical developments can act as a way to remove "overhangs," they are not sustainable catalysts for long-term rallies.

A significant positive indicator for the Indian market is the marked improvement in market breadth. Mehra noted a complete flip in market dynamics compared to early 2025. During that period, while indices were rising, the median stock was actually down, with 40% of stocks falling by more than 10%. In contrast, the current market shows a majority of stocks outperforming the indices—a shift that signals a much healthier and more robust ecosystem for investors.

The Fallacy of Reacting to Geopolitical Risks

A key takeaway from Mehra’s analysis is the warning against emotional decision-making driven by global conflicts. Drawing on 125 years of market data—covering two World Wars, the Gulf Wars, and 9/11—she pointed out that markets historically "shrug off" conflicts, even when they persist, such as the Russia–Ukraine war.

While she acknowledges that crude oil movements directly impact Indian earnings, she advises against building entire investment strategies around uncertain geopolitical outcomes. Instead, she advocates for a disciplined approach: "When you are panicking is when you need to remain in the market. That is the superpower: do not get out when your mind is screaming get out."

Mehra highlights a recurring pattern in investor behavior: sentiment is often a "contra indicator." She observed that while fund managers were selling the India growth story eighteen months ago, the narrative has abruptly shifted to discussing risks. Historically, when sentiment turns extremely negative, future returns tend to be above normal.

Regarding global strategy, Mehra cautioned against the "concentration trap." Many investors believe that holding US indices or the "Magnificent Seven" constitutes sufficient diversification, but she argues this is a misconception. The leadership in the US market has narrowed, and many of yesterday's winners are now underperforming.

To achieve true diversification, Mehra suggests looking beyond the US toward markets like Europe, China, Malaysia, and Mexico. She warns that global investing requires genuine expertise, as many schemes fail by chasing past winners rather than anticipating new market leaders.

Key Takeaways