Andy Mukheree: India's love for equity is being tested—can the US-Iran ceasefire restore confidence?

Throughout this decade, India’s household savings have steadily left the safety of bank deposits to chase returns in equities. This was supposed to provide a stable pool of risk capital to entrepreneurs and act as a shock absorber against fickle hot-money inflows from overseas. The Iran war punched holes in this cheery thesis that a ceasefire may not mend.For the first time since the pandemic, individual investors were net sellers in the secondary market in the first 11 months of 2025-26.

That sign of pessimism, which pre-dates the war, could become more pronounced because of the conflict. Much of the 19% annualized three-year return on the Nifty Smallcap 100 Index came from a bumper performance in 2023 and early 2024. That will soon vanish.

If the benchmark stalls at current levels, the new three-year return in March 2027 will be just 1.3%. Unless valuations reset at more attractive levels, the psychological shock of low realized gains could pour cold water over expectations of future outperformance. At risk are systematic investment plans, through which the middle class has poured nearly ₹6 trillion into mutual funds since early 2024.

These plans are the “big bang” phenomenon for the Indian capital market, Bernstein noted. “We remain watchful of how retail investors behave if markets remain sideways for the next 12 months,” its analysts said. Should people stop wiring small sums of money every month to mutual funds, the intermediaries that depend on them could be in big trouble.

Before Wednesday’s ceasefire-inspired stock-market surge, HDFC Asset Management’s shares had fallen about 15% over six months. Brokerage Motilal Oswal had tumbled 25%.Investment bankers are also on edge. From Mukesh Ambani’s digital empire to