Economic growth is not linear; it is cyclical. Similarly, stock market trends are also not linear, but cyclical. The cyclicality of markets are stronger and more conspicuous than the cyclicality of economic growth. Sometimes, the markets follow a boom-bust cycle. Overreactions are typical of the markets. Stock prices overreact both on the upside and the downside, thereby accentuating the up moves and down moves. Bull rallies and market crashes often surprise even market gurus.
After the Covid crash of March 2020, globally, stock markets are in a boom phase. The stock indices of most countries are at record highs or near record highs. The standout feature of the ongoing bull run, particularly in the mother market US, is the dominance of the tech stocks. In other countries, too, new sectors and companies have emerged as leaders of the rally. From the investors’ perspective, comprehending the nature of this bull run, and the leading sectors powering the rally, is important to optimize the returns from investment.
Tech boom in the US
US tech companies with a market cap of $20.5 trillion in mid-October 2025 account for 36 percent of S&P 500’s market cap. AI leader Nvidia has a market cap of $ 4.45 trillion. Only five countries of the world have a market cap above $4 trillion. The fact that a single company has a market cap which is higher than the market cap of all, but five countries reflect the humungous size of this and other leading tech companies.
There are concerns being expressed about the runaway boom in US tech stocks. Comparisons are drawn with the tech bubble of the late 1990s which resulted in the Tech Bubble Burst of 2020. However, the valuations of the tech stocks, the so-called Magnificent Seven (Mag 7), are not yet in bubble territory like in 2000. Even though the PEs of tech stocks are higher than the S&P average, the valuations are not exuberantly irrational like the Nasdaq PE of around 200 at the peak of the dot-com bubble. The Mag 7 stocks have high earnings growth, unlike the dot-com companies of the late 1990s, which had no earnings and were driven by hope.
In Hong Kong, the semiconductor major, Semiconductor Manufacturing International Corporation (SMIC) soared 328 percent in the last one year contributing substantially to the Hang Seng’s 23 percent bull run in the last one year. Taiwan’s TSMC and South Korea’s Samsung Electronics have played crucial roles in the bull rallies in those countries.
Super cycles in India
In India, even though the market delivered only a pedestrian return of 3.5 percent during the last one year, many sectors delivered impressive returns. The Nifty Capital Market Index led from the front with 24 percent returns, followed by the Nifty India Defense Index delivering 23.5 percent returns. Similarly, the digital platform companies and renewable energy companies have been witnessing stellar growth rates. Hospital stocks also performed well during the last year. Data center stocks have become the latest fancy among investors, and many are trading at elevated valuations, driven by hope,
In sharp contrast to the exuberance surrounding these new growth stocks, the old darlings of Dalal Street – the IT companies – are on the back foot. The IT index, hugely disappointed during the last one year with negative returns of 16 percent. The IT industry is widely expected to clock a tepid growth rate of around 4 percent in top line this year. AI disruption and weak US demand are strong headwinds for the industry. The challenges facing the sector are formidable, and this is weighing on the stock prices. Banks, after stupendous profit growth of around ten times from FY18 to FY25, are experiencing only moderate growth. Compression of NIMs and rising NPAs in the unsecured lending segment have slowed down the growth rate of banks. However, this sector is attractively valued and there are opportunities for value investing in the sector.
Capital flows into the market continues unabated; sustained growth in SIPs is a healthy trend. DIIs, flush with funds, are buying stocks on dips. Since FIIs have been on a selling spree in 2024 and so far in 2025, DIIs receiving sustained flows could absorb the selling. FII selling has kept large cap valuations reasonable. But the broader market valuations continue to be elevated. Small caps continue to be excessively valued. Mid-caps, despite high valuations, are experiencing impressive growth. Since most of the stocks in the new fancied growth sectors are mid-caps, this segment, which is likely to do well going forward, deserves a lot of attention.
