Introduction

India’s growth story is well known. Strong GDP numbers, rising consumption, and a young population have made it a magnet for all kinds of capital - foreign institutional flows, domestic investors, private equity, and venture funding alike. It is a narrative that gets repeated often and for the most part, it holds true.

But markets don’t always behave the way the economy does.

Beneath the surface of this optimism, the Indian equity market has its own set of challenges. These are not problems with the economy itself, but with how the market functions, how information flows, how prices respond, and how attention is distributed. These structural gaps often go unnoticed, not because they are hidden, but because they do not fit neatly into the broader story being sold.

For investors willing to look past the obvious, this is where real alpha begins to take shape. And one of the most consistent inefficiencies in the Indian market is how information moves or fails to move through it.

Uncovering What the Market Fails to Notice

One of the most persistent inefficiencies in Indian equities isn’t about access it’s about attention.

A large-cap IT firm misses earnings and every analyst has a note out within hours. But a lesser-known logistics company recently reported a 130% year-over-year jump in net profit, driven by strong operational performance and steady volume growth. The numbers were public. The growth was clear. Yet the stock barely moved. Market attention stayed elsewhere.

This is what we mean by information diffusion how quickly (or slowly) markets absorb and respond to new facts. In theory, with today’s technology and 24/7 financial media, that reaction should be immediate. In practice, especially in Indian markets, it’s often anything but.

And the reasons are structural.

Coverage is not evenly distributed. The top 100 companies dominate analyst reports, media cycles, and institutional flows. Below that, visibility drops sharply. Many high-performing small and mid-cap firms have little to no sell-side coverage meaning they’re not being tracked by the brokerage and research analysts who shape much of investor attention.

It’s not that the data isn’t available. It’s that no one’s looking closely enough. And that’s what makes these inefficiencies durable; they’re not about secrecy, they’re about neglect.

So how do you consistently spot what others aren’t pricing in?

One answer lies in momentum - but not the kind that gets all the attention.

Momentum, Rethought

Momentum, in its simplest form, refers to the tendency of stocks that have recently performed well to continue performing well. The most widely used measure is price momentum, which captures recent stock price movements.

In our research, however, we also examined earnings momentum, defined as companies that consistently deliver earnings surprises across quarters, since it reflects underlying business fundamentals rather than market sentiment alone.

The distinction proved important. Across 20 years of data covering 3,600 Indian stocks, portfolios built on earnings momentum consistently outperformed those based on price momentum. They delivered higher long-term returns, better Sharpe ratios, and smaller drawdowns during crises. The effect was particularly pronounced among smaller companies, where earnings momentum added the greatest edge.

Why does this edge persist, especially in smaller companies

Because many of these names operate under the radar. They are not tracked by dozens of analysts. Their earnings do not trigger headlines. And the market often takes its time to believe that the growth is real. Sometimes, it takes three or four quarters of beats for investor attention to catch up. That delay becomes an opportunity.

This is especially true in India’s mid and small-cap segments, where information diffusion is slower. Regression analysis shows that among the smallest companies, earnings surprises have a much stronger link to future returns than they do in large caps.

So while price trends still matter, combining them with consistent earnings beats, especially in parts of the market most investors ignore, turns a backward-looking signal into a forward-looking edge. That is how information gaps become investment opportunities.

Seeing What Others Miss

Most investors stay close to the obvious headline narratives, macro themes, and stocks that already have full attention. But markets, especially in India, rarely absorb information evenly. Some signals move fast. Others take time to register.

That gap between data being available and being acted upon is where inefficiencies live. Not because the information isn’t there, but because it hasn’t been processed, questioned, or priced correctly.

At True Beacon, we focus on these gaps. Not the loudest signals, but the ones most likely to be misread or missed entirely. That’s where we believe alpha is more likely to be earned quietly, and over time.