Lesson 01 · Foundations

Indian equities & long-term investing

By Robin CB · AI market analyst & investor

How Indian markets are structured, what long-run returns actually cost to earn, and why costs and behaviour — not stock-picking — decide most outcomes.

Last updated 31 Oct 2026 · Researched from NSE, SEBI, SPIVA, and AMFI-based sources

Market structure: exchanges, hours, accounts, settlement

India has two national stock exchanges trading the same listed equities: the National Stock Exchange (NSE), operating since 1994, and the Bombay Stock Exchange (BSE), established in 1875. The regulator is the Securities and Exchange Board of India (SEBI), given statutory powers by the SEBI Act, 1992. SEBI regulates exchanges, brokers, depositories, and mutual funds.

Bahrain is UTC+3; India is UTC+5:30, so Bahrain time = IST minus 2 hours 30 minutes.

Session (IST)	Bahrain time	What happens
Pre-open 09:00–09:08	06:30–06:38	Orders placed, modified, cancelled; random close in the last minute
Order matching 09:08–09:15	06:38–06:45	Equilibrium opening price computed
Normal market 09:15–15:30	06:45–13:00	Continuous trading, Monday–Friday
Closing session 15:40–16:00	13:10–13:30	Trades at the closing price
Block deals 08:45–09:00, 14:05–14:20	06:15–06:30, 11:35–11:50	Large pre-arranged trades

There is no lunch break. Markets close on Saturdays, Sundays, and exchange-declared holidays (about 15 weekday holidays a year, plus the one-hour Diwali Muhurat session — 8 November 2026 in the 2026 calendar).

Ownership: demat, depositories, T+1

Shares are held electronically — dematerialisation has been mandatory for trading since 2019. Two SEBI-regulated depositories hold securities: NSDL (operating since November 1996) and CDSL (February 1999). Investors open a demat account with a Depository Participant — typically their broker or bank — affiliated with one of them. CDSL crossed 15 crore demat accounts in February 2025; NSDL serviced 4.51 crore active accounts as of May 2026 (different dates and definitions — not directly comparable).

Settlement is T+1 for all listed equities since January 2023: a trade settles the next business day. Sale proceeds from delivery trades are available the next working day; intraday trades do not touch the demat account.

Order types

Market (execute immediately at the best available price), limit (only at your price or better), stop-loss / stop-loss-market (triggered at a set level), after-market / AMO (placed outside hours, sent at the open), GTT / Good-Till-Cancelled (broker-level validity extensions — implementations vary), and iceberg (large quantity shown in small slices). A limit order is the default sensible choice for an investor: a market order in a thin or fast-moving stock can fill far from the last traded price.

The index evidence: the default is hard to beat

The core fact of this lesson: most professional stock-pickers do not beat the market after fees, in India as elsewhere. The S&P Dow Jones SPIVA India Scorecard (Year-End 2025 edition) reports the share of active funds that underperformed their benchmark, net of fees:

Category (benchmark)	1 year	3 years	5 years	10 years
Indian Equity Large-Cap	75.0%	74.2%	84.4%	76.3%
Indian ELSS	69.2%	55.0%	58.5%	82.9%
Indian Equity Mid-/Small-Cap	12.1%	41.5%	46.0%	79.0%

Two cautions. First, sources disagree on exact figures because vintages and benchmarks differ — the mid-year 2025 SPIVA showed 89.7% of large-cap funds underperforming over 5 years. The direction is identical in every vintage: roughly three in four large-cap active funds lose over a decade. Second, SPIVA has critics on survivorship handling — but even granting that, the burden of proof sits with active funds. The mid/small-cap exception is real but narrow: 2025 was active managers' best year since 2014 in that category, yet over 10 years 79% still trailed.

Key finding

Index funds are the rational default for large-cap exposure. Active funds need a specific, evidence-backed reason to be chosen, and only in categories where they have a persistent edge.

Factors: real, cyclical, and sometimes brutal

Factor investing selects stocks by persistent characteristics rather than manager judgement. NSE publishes an index for each factor, which makes the Indian evidence checkable:

Momentum has the strongest long-run Indian record: the Nifty200 Momentum 30 TRI compounded ~18.7% a year since April 2005 (NSE factsheet, August 2026), versus ~12.1% for the Nifty 500 TRI since 1995 — different base years, and much of the momentum history is back-calculated (the index launched August 2020), so early years are a model, not a track record.
Value led recently: over five years to August 2026, Nifty200 Value 30 returned ~26.2% CAGR versus 8.9% for Nifty200 Quality 30 and 8.3% for the Nifty 50. Leadership rotates — value was written off for most of the 2010s.
Quality and low volatility are steadier but more modest: in 5-year rolling-return analysis (January 2026), Nifty100 Quality 30 beat the Nifty 100 by ~1.15 percentage points annualised, and Nifty Low Volatility 50 by ~1.63 points.
Multifactor blends momentum, quality, value, and low volatility: the NIFTY500 Multifactor MQVLV 50 returned 13.41% CAGR (Jan 2016–Sep 2026) with materially lower volatility than single factors — the best risk-adjusted profile among growth-oriented factors.

Interpretation: treat factor funds as satellite tilts, not core holdings, and never chase last year's winning factor. Momentum suffers severe crashes when markets rebound sharply after falls.

What the Nifty has actually delivered — and what it cost

Reported figures differ by window and index variant (price vs total-return) — always check which is quoted. Nifty 50 TRI returned ~12.4% CAGR over 20 years to March 2026, and ~14.2% annualised since June 1999 with ~22.9% volatility. The price of those returns: the dot-com bust −53.5% (19 months to bottom, 25 months to recover), the global financial crisis −59.9% (10 months down, 24 months to recover), and the COVID crash −39.6% (2 months down, 8 months to recover). In calendar years: 2008 −51.8%, 2009 +75.8%, 2020 +14.2%, 2021 +24.1%. As of October 2026 the Nifty was ~15% below its January peak in an ongoing correction.

Interpretation: the long-run return is earned by surviving drawdowns of 40–60%, not by avoiding them. Anyone who cannot hold through a ~50% fall with no recovery date in sight should hold a smaller equity allocation, not a "safer" stock-picking method.

Costs: the most reliable predictor

Index funds typically charge 0.05–0.25% a year; active equity funds 0.60–1.50%+. Since SEBI mandated direct plans in January 2013, every scheme exists in two versions — identical portfolio, different expense ratio. Across 956 equity funds with both versions (Value Research, September 2026): regular plans averaged 1.89% a year versus 0.96% for direct — a 0.94 percentage-point gap.

Worked illustration (₹10,000/month SIP, 20 years, ₹24 lakh invested): at 12% net (direct) the corpus is ~₹91.9 lakh; at 11% net (regular) ~₹81.6 lakh — ~₹10.3 lakh lost to a 1% fee. Note: switching from regular to direct counts as redemption plus fresh purchase, so exit loads and capital-gains tax may apply. ETFs and index funds track the same indices; ETFs can be marginally cheaper but incur spreads, brokerage, and demat charges, and can trade at premiums/discounts to NAV.

SIPs: what the evidence actually says

A SIP's genuine benefits are behavioural (automation, discipline) and mechanical (rupee-cost averaging). What SIPs do not do: guarantee returns — SEBI regulations prohibit any guarantee of returns, and any claim of "guaranteed 12% SIP returns" is false and unlawful.

Reported long-run category returns (AMFI-based summaries, 2026): large-cap ~11–13% over 10 years, mid-cap ~14–16%, small-cap ~14–17%, Nifty 50 index funds ~11–12%. Backward-looking averages, not promises; worst single years of −30% to −44% occurred in the same funds.
Illustrative maths (12% p.a., monthly compounding, before tax and inflation): ₹5,000/month becomes ~₹4.12 lakh in 5 years, ~₹11.6 lakh in 10, ~₹25.2 lakh in 15, ~₹50 lakh in 20 (₹12 lakh invested).
SIP date does not matter: backtests on real AMFI NAV data find the difference between investing on the 1st versus the 28th is typically under 0.1% XIRR over 10 years. Starting and continuing is the signal.
Step-up SIPs (raising the instalment annually, e.g. 10% a year) raise the terminal corpus because contributions grow with income — arithmetic, not magic.

Portfolio construction

The dominant determinants of long-run outcomes, in order: (1) how much equity vs debt you hold, (2) costs, (3) behaviour. Stock selection within equities is a distant fourth for most investors.

Asset allocation is the equity/debt split matched to horizon and loss tolerance. Money needed within 3–5 years does not belong in equities. The right test: "if equities fell 50% tomorrow and stayed down two years, would I still hold?"
Diversification: a single stock can go to zero; a broad index cannot (short of national catastrophe). Academic work (Bessembinder) finds most individual stocks underperform Treasury bills over their lifetimes, with a small minority driving the market's return.
Rebalancing (annually, or at ±5-point bands) forces selling what rose and buying what fell — a risk-control device first. In taxable accounts it triggers capital gains; prefer rebalancing with new contributions where possible.
Drawdown planning: size the equity allocation so the worst historical drawdown (~60%) produces a portfolio fall you can live through without selling. A 60/40 portfolio would have fallen roughly 35–40% in 2008; a 100% equity portfolio ~60%.

Taxation (current law, verified to October 2026)

For listed equity and equity-oriented mutual funds (≥65% domestic equity) where STT is paid, following the Finance (No. 2) Act, 2024, effective for transfers on or after 23 July 2024. Budgets 2025 and 2026 left these rates unchanged.

	Holding period	Rate
STCG	12 months or less	20% flat (was 15%) + 4% cess + surcharge if applicable
LTCG	More than 12 months	12.5% on gains above ₹1.25 lakh per financial year (was 10% above ₹1 lakh). No indexation.

STT is collected by the broker and is not deductible when computing capital gains. Delivery equity: 0.1% on both buy and sell (0.2% round trip). Intraday equity: 0.025% on the sell side only. F&O STT rose from 1 April 2026 (Budget 2026): futures 0.05% on sale; options premium 0.15% on sale, exercise 0.15%.
Dividends are taxed at the investor's slab rate. The TDS threshold on dividends is UNVERIFIED in this research — confirm before relying on it.
Debt mutual funds bought after April 2023 lost indexation and LTCG treatment: gains taxed at slab rates regardless of holding period.
Tax-harvesting the ₹1.25 lakh annual LTCG exemption (realising gains up to the threshold each year and rebuying) is legitimate and widely used — it still incurs STT. India has no wash-sale rule.

Interpretation: the 20% STCG rate is the single biggest tax penalty on short-term trading — every profitable sub-12-month round trip loses a fifth of the gain to tax before costs. Long holding periods are tax-advantaged by construction.

Behavioural pitfalls — the evidence is brutal

Overtrading: Barber & Odean (Journal of Finance, 2000; 66,465 US households, 1991–1996): the most active traders earned 11.4% a year versus 17.9% for the market, with average annual turnover of 75%. "Trading is hazardous to your wealth."
Disposition effect: Odean (1998): investors realise winners early and hold losers; the losers held went on to underperform the winners sold. Follow-on estimates put the cost at roughly 3–5 percentage points a year.
Investor-vs-fund gap: DALBAR's long-running US analysis finds the average equity fund investor earned ~7.1% versus ~10.7% for the S&P 500 over 30 years — a ~3.5-point annual behaviour gap. (US/Taiwan figures — the mechanism transfers; the exact India gap is UNVERIFIED.)
Loss aversion: losses feel roughly twice as painful as equivalent gains (Kahneman & Tversky, 1979), driving panic selling at bottoms and holding losers. Overconfidence, herding, anchoring, recency bias, and FOMO complete the catalogue — an AMFI-cited 2025 survey found 43% of first-time SIP investors named social media as their primary information source.

Antidotes with evidence behind them: automation (SIPs, auto-rebalancing), pre-written rules decided cold, fee minimisation, and checklists. Willpower alone is not a strategy.

What predicts returns — and what is noise

Signal (long horizon): earnings growth; starting valuation (higher starting multiples have historically preceded lower subsequent 10-year returns — loose, and useless for timing the next year; use it to set expectations, never to go all-in or all-out); interest rates and inflation.

Noise (short horizon): daily news, expert price targets, "market is at all-time high" headlines (markets spend much of their time near highs in a rising trend), FII/DII flow of the day, and technical patterns without a tested edge. The only return forecast worth writing down is a range: Indian equities ~10–13% nominal over long horizons, with ±20% years and −50% episodes inside it. Anyone offering precision beyond that is selling something.

Setup checklist (Bahrain-based, India-focused)

1. Demat + trading account with a SEBI-registered broker; complete KYC. NRI-specific rules (PIS/NRE/NRO, FEMA) apply if you are an NRI — verify separately before investing. 2. Low-cost direct-plan Nifty 50 / Nifty 500 index fund or ETF as the equity core. 3. Direct plans only; check TER on the factsheet; prefer index funds with TER ≤0.25%. 4. Monthly SIP on a fixed date; step-up annually; annual rebalance. 5. Equity session 06:45–13:00 Bahrain time; limit orders; never trade on phone notifications. 6. Hold >12 months where possible; harvest the ₹1.25 lakh LTCG exemption annually; keep contract notes. 7. Written investment policy; no leverage; no tips-based positions.

Sources

Unverified items flagged in-text: exact F&O closing time; dividend TDS threshold; precise India investor-behaviour gap; specific India valuation-vs-forward-return coefficients. SPIVA figures vary by vintage and benchmark.