A staggering 91% of retail investors trading in futures and options (F&O) lost money in FY24, with aggregate losses crossing ₹1.8 lakh crore over the past three years, according to SEBI data. The average loss per trader rose to ₹1.1 lakh in FY25, up 41% year-on-year. A significant portion of these losses occurred during earnings seasons—when retail traders were often most active, and most wrong.

According to CA Vivek Khatri, the core issue is not misreading company results — but misunderstanding how markets interpret them. “The gap between what a company earns and what its stock does is the most expensive knowledge gap in Indian retail investing today,” he said.

Earnings season

Earnings announcements typically trigger sharp moves, attracting retail F&O traders looking to capitalise on volatility. Most trades are based on a simple assumption: strong results should push stocks higher, while weak numbers should lead to declines.

But markets don’t operate on that logic.

A defining example came in April 2026, when TCS reported a 12.2% rise in net profit and record deal wins of $12 billion. Despite this, the stock fell over 3% on results day. The reason lay in a less visible metric—dollar revenue declined for the full year, signalling weaker future growth.

Conversely, Infosys saw its stock rise despite a drop in profits, as it upgraded forward guidance. The takeaway is clear: markets react to what lies ahead, not what has already happened.

The expectation gap trap

This mismatch is driven by what Khatri describes as the “expectation gap.” Retail traders typically focus on whether a company beat or missed estimates. However, stock prices already factor in consensus expectations—and often more.

What matters is not the result itself, but how it compares to what the market had already priced in.

“Your job isn’t to predict the result. It’s to predict what the result means relative to what the price already assumed,” Khatri said .

This explains why many traders were “right” about earnings direction but still lost money. As Khatri puts it, being right about the result did not mean being right about the trade.

Macro and valuation overrides

Adding to the complexity, earnings are only one input in stock pricing. In FY26, broader forces repeatedly overrode company performance.

The Nifty IT index fell around 25% in 2026 despite strong deal pipelines and stable operations. Concerns over AI-led disruption, which could structurally reduce IT services demand, triggered a sector-wide valuation reset. At the same time, global factors such as elevated US interest rates and geopolitical tensions led to foreign investor outflows.

Similarly, HDFC Bank declined nearly 20% despite steady profit growth, as the entire banking sector underwent valuation compression.

In such environments, even strong earnings cannot support stock prices.

Different investors, different signals

Another reason retail traders struggle is that different market participants interpret the same data differently. Foreign institutional investors (FIIs), domestic investors (DIIs), and retail traders operate with different objectives, time horizons, and constraints.

While retail investors react to earnings headlines, institutional players often focus on macro trends, valuation multiples, and capital allocation decisions — leading to price movements that appear counterintuitive.

A different way to read markets

The biggest lesson from FY24 is that markets are not backward-looking scorecards. They are forward-looking systems.

“Most investors read the income statement. The market has already read the next three quarters,” Khatri noted .

At a deeper level, markets function as probability machines—continuously updating expectations about future earnings based on new information.

For retail F&O traders, this shift in understanding is critical. Trading based solely on reported numbers, without factoring in expectations, guidance, and macro context, creates a structural disadvantage.

As the data shows, high participation combined with misaligned understanding continues to result in persistent losses—especially during earnings season, when the gap between perception and market reality is at its widest.