Beyond Geopolitics: Why Earnings and Market Breadth Will Drive Indian Equities

While global headlines often focus on shifting geopolitical tensions, the true drivers of market direction are much more fundamental. Devina Mehra, Founder & CMD of First Global, suggests that investors should look past geopolitical deals and focus instead on earnings trends, liquidity cycles, and improving market breadth.

Why Geopolitics is a Distraction, Not a Driver

In a recent discussion with ET Now, Devina Mehra emphasized that while a potential Iran–US deal could remove a significant global overhang, it is unlikely to be the primary catalyst for Indian equities. She cautioned investors against building investment strategies around uncertain geopolitical outcomes, noting that historical data over 125 years—spanning two World Wars and multiple Gulf Wars—shows that markets eventually shrug off even prolonged conflicts.

While Mehra acknowledged that crude oil movements directly impact Indian corporate earnings, she reiterated her core advice: do not overreact to geopolitical risks. Instead, investors should focus on the underlying economic indicators that dictate long-term value.

Improving Market Breadth and Positive Indicators

One of the most encouraging signs for the Indian market is the significant improvement in market breadth. Mehra highlighted a stark contrast between the market structure in early 2025 and the current landscape. In 2025, despite rising indices, the median stock was actually down, with 40% of stocks falling by more than 10%.

The current market has "flipped" this trend. Today, a majority of stocks are outperforming the indices, a significant shift from a period where only about 15% of stocks were outperforming. This broad-based participation is a healthy sign for the overall ecosystem. Consequently, Mehra advises staying invested within your chosen equity allocation rather than attempting to time the market based on headlines.

Avoiding the Trap of Emotional Investing

Mehra warned that sentiment is often a "contra indicator." She observed that recent months have seen jittery behavior among Indian investors, with SIP numbers and new account openings turning negative. Historically, mutual fund inflows tend to peak at market highs and bottom out at market lows due to human emotion.

"When you are panicking is when you need to remain in the market," Mehra stated, calling emotional discipline a "superpower." She noted that while fund managers were once selling the India growth story, the narrative has now shifted to extreme risk aversion. Probability suggests that when sentiment is this negative, future returns tend to be above normal.

The Importance of True Global Diversification

For investors looking beyond India, Mehra warned against the misconception that owning US index funds or "Magnificent Seven" stocks constitutes true diversification. She noted that the leadership in US markets has narrowed, with several top stocks underperforming in 2025.

Instead, she advocates for broader geographical exposure. First Global has maintained an underweight position on the US for 18 months, opting instead to go overweight on Europe and China, while adding exposure to markets like Malaysia and Mexico. She cautioned that global investing requires deep expertise to avoid the trap of chasing yesterday's winners.

Key Takeaways