Markets to Shift Focus from Geopolitics to Earnings, Says Devina Mehra

While global geopolitical tensions often dominate news headlines, the true drivers of market direction will remain corporate earnings, liquidity cycles, and investor positioning. Devina Mehra, Founder & CMD of First Global, suggests that while a potential Iran-US deal could remove market overhangs, it will not be the primary engine for Indian equity growth.

Why Geopolitics Should Not Drive Your Investment Decisions

Devina Mehra advises investors to avoid reacting impulsively to geopolitical developments. Drawing from 125 years of historical data—including two World Wars and the Gulf Wars—she notes that markets have historically shrugged off even prolonged conflicts, such as the Russia-Ukraine war.

While she acknowledges that geopolitical shifts impact India through crude oil prices, which in turn affect corporate earnings, she cautions against building a portfolio based on uncertain geopolitical resolutions. Instead, the focus should remain on fundamental indicators.

Improving Market Breadth and Sentiment Shifts

A significant positive sign for the Indian market is the recent improvement in market breadth. Mehra points out a stark contrast between the market landscape in 2025 and the current environment. In 2025, while indices were rising, the median stock was actually down, with 40% of stocks falling by more than 10%.

Currently, the trend has flipped: a majority of stocks are outperforming the indices, a significant shift from the previous year when only about 15% of stocks were outperforming. Despite recent jitters—evidenced by negative SIP numbers and account trends—Mehra views the current negative sentiment as a contra indicator. Historically, when sentiment is extremely negative, the probability of above-normal future returns increases.

The Perils of Emotional Investing and US Concentration

Mehra warns against the "dangerous consensus" of emotional behavior. She observes that mutual fund inflows often peak during market highs and bottom out during lows, driven by human panic rather than logic. Her advice to investors is to treat staying invested during periods of fear as a "superpower."

Regarding global diversification, she cautions that "the US is not the globe." While many investors believe owning US index funds or the "Magnificent Seven" tech stocks provides sufficient diversification, Mehra argues this is insufficient. She notes that the leadership in US stocks has narrowed, and many of yesterday's winners are now underperforming. She suggests looking toward undervalued or overlooked markets like Europe, China, Malaysia, and Mexico to achieve true global diversification.

Key Takeaways