India’s equity market is showing signs of fatigue. After months of scaling record highs, benchmark indices have dipped by over 2 percent in the last month, with mid and small-cap stocks faring even worse. Such market corrections are par for the course, but what stands out is the enduring optimism of the Indian investor. October marks the fifteenth consecutive month of net buying by domestic investors, with total investments exceeding a staggering ₹4 lakh crore as per a report.

Optimism Despite Market Wobbles

While some narratives highlight India’s robust economic growth story, fuelled by the Reserve Bank of India’s positive outlook, others point to potential market froth. Earnings reports are sending mixed signals. IT giant Infosys slightly missed net profit estimates, and deal pipelines across the sector appear less robust. Nestle’s numbers were modest, and the fast-moving consumer goods sector is feeling investor chill due to margin and volume risks. As the earnings season progresses, warnings of a less than upbeat quarter are mounting.

However, domestic investors seem to be betting on the brighter side – India’s high growth potential, rising incomes, past equity returns, and strong corporate balance sheets. Geopolitical uncertainties, supply chain disruptions, and climate change are seemingly viewed as distant concerns. This unwavering faith is perhaps best explained by the observation that the future expectations index from RBI consumer surveys consistently stays above 100, reflecting optimism about prospects, even as the current situation index lags below 100 since December 2016.

Consumer Credit Fuels Growth

This forward-looking optimism isn’t confined to the stock market; it extends to the Indian consumer as well. Recent data indicates a surge in aspirational borrowing, with consumer durables purchases like smartphones and home appliances jumping to 37% of borrowing in 2024, a significant rise from just 1% in 2020, according to a study. This shift, coupled with a growing preference for digital banking solutions – 65% of borrowers now favour app-based banking – underscores a confident consumer base willing to invest in their future. This blend of investor and consumer optimism could be a significant driver of India’s economic momentum.

This is not to say Indian investors are oblivious to risk. The tepid response to Hyundai Motor India’s IPO, despite full subscription, indicates a degree of caution. Retail investors appear to have noted the red flags, suggesting a discerning approach rather than blind enthusiasm.

Will this optimism sustain? The Indian investor’s conviction is set to be tested in the coming days and months. Geopolitical winds are unpredictable, domestic economic prospects are not guaranteed, and market sentiment can shift rapidly. But as the saying goes, “The past wasn’t as good as you remember. The present isn’t as bad as you think. The future will be better than you anticipate.” Perhaps, this inherent belief in a better future is the bedrock of the Indian market’s resilience.

Will this optimism continue to defy global headwinds and market corrections? Time will tell, but for now, the Indian investor’s faith remains a powerful force in the market.