Edited excerpts from a chat on market outlook and investing technique:
How do you assess the present market structure, and the place do you see essentially the most compelling risk-reward alternatives over the subsequent 12–18 months?
The macro structure has improved materially. The Funds is behind us, the US-India commerce deal is in place, and liquidity circumstances have eased meaningfully. The RBI has delivered sizable fee cuts, system liquidity has shifted into surplus, and credit score progress, after moderating to 9%-10% has rebounded to 13-14%, with scope for additional acceleration. Revenue tax aid, GST rationalisation and the upcoming pay fee cycle ought to help disposable earnings and concrete consumption.Externally, the capital account pressures that drove sustained rupee weak spot are moderating. Commerce agreements with key companions, together with the US, UK, EU and UAE, have enhanced exterior commerce visibility. US tariffs on India are aggressive relative to Asian friends, restoring export viability. The current US Supreme Courtroom ruling difficult the chief authority of Trump’s administration behind sweeping tariff measures creates short-term coverage uncertainty. Nevertheless, for India, outcomes seem beneficial both means. If the present ~18% tariff framework holds, India stays competitively positioned. If broader tariffs are rolled again, decreased international commerce friction would profit India and different export economies alike. A stabilising rupee, mixed with bettering commerce phrases, can revive overseas portfolio flows, probably making a virtuous cycle.
This backdrop helps a beneficial medium to long-term risk-reward in home segments corresponding to discretionary consumption, financials, manufacturing, and choose capital items. Export-oriented manufacturing presents an incremental alternative.
Key dangers stay crude value volatility, which may reintroduce macro pressures, and AI-led disruption inside legacy IT companies.
To what extent do you see AI-led disruption altering the aggressive panorama for IT companies?
AI is essentially altering the financial construction of IT companies. Indian companies face real disruption danger within the absence of swift adaptation. The trade has navigated prior expertise shifts, corresponding to automation, cloud, and digital transformation, by incorporating become its supply mannequin. This time it’s totally different as a result of AI, notably agentic workflows, targets the core effort-based income engine, together with coding, testing, upkeep and help.
AI-driven coding assistants and autonomous brokers now execute substantial parts of software program growth and more and more handle legacy programs with better precision. As enterprises combine these instruments inside supply frameworks, undertaking cycles shorten, and pricing fashions shift towards outcomes relatively than effort. Throughout this transition, conventional income streams in software growth, software program engineering and elements of BPO may face significant strain.
Valuations of a number of incumbents already suggest muted long-term progress, reflecting scepticism in regards to the sturdiness of labour arbitrage-led supply fashions. Whereas this may occasionally seem conservative, valuation consolation alone is unlikely to drive a rerating. Incumbents anchored to legacy supply fashions are extra uncovered, whereas challengers with stronger digital and AI native capabilities are higher positioned to achieve share. Firms should show that AI expands their addressable alternative relatively than merely compressing billable effort.
The strategic danger is inertia. Corporations that proceed to rely totally on scale, labour arbitrage and incremental automation might face structural margin and progress erosion. The winners will materially enhance R&D, construct proprietary AI platforms, shift towards outcome-based pricing and embed AI throughout each layer of supply. Reinvention is feasible, however the window to execute is narrowing.
What’s your outlook on the power transition theme, notably in renewables and photo voltaic, and the place do you see scalable, investible alternatives rising?
India’s 500 GW renewable goal by 2030, as soon as seen as bold, now appears to be like comfortably achievable if present momentum sustains. Photo voltaic additions have accelerated sharply, with ~30 GW added in 9MFY26, up from ~24 GW in FY25, bringing cumulative photo voltaic capability to ~136 GW. At this tempo, reaching ~280 GW of photo voltaic by 2030 seems properly inside attain.
Demand may shock on the upside. Knowledge centre capability is predicted to scale up multifold over the subsequent 5 years, and inexperienced hydrogen may change into an incremental structural driver of renewable energy demand.
Photo voltaic stays central to the transition, rising considerably during the last 5 years, supported by robust company and industrial demand, photo voltaic pumps beneath PM KUSUM, and rooftop adoption beneath PM Surya Ghar. Penetration stays low throughout these segments. Round 11 lakh photo voltaic pumps have been put in thus far, however almost 80 lakh diesel pumps stay out there for conversion. Continued budgetary allocation reinforces coverage continuity.
Essentially the most scalable investible alternative lies in built-in photo voltaic manufacturing. A transparent coverage roadmap is driving phased indigenisation from modules to cells and, ultimately, to wafers. Firms with confirmed cell efficiencies which can be backward integrating into wafers and ingots, whereas increasing into batteries, inverters and allied electricals, can construct sturdy aggressive benefits. Built-in gamers with expertise depth and value management may take pleasure in a multi-year upcycle that extends past easy capacity-addition themes.
Which structural progress areas in India are nonetheless underappreciated by the market regardless of robust long-term fundamentals?
A number of sectors with bettering structural drivers are nonetheless not absolutely valued for his or her medium-long time period earnings trajectory: financials, telecom, business automobiles and built-in photo voltaic manufacturing.
Financials: Financial institution earnings have been subdued on account of slower credit score progress, which moderated to ~9% earlier than recovering to ~13–14%, together with margin compression in the course of the declining rate of interest cycle. With liquidity bettering and the speed cycle nearing its finish, margin pressures ought to ease, and credit score progress is prone to re-accelerate. Personal banks proceed to commerce at cheap multiples relative to their ROE potential, whereas PSU banks, after sharp outperformance, provide a much less beneficial risk-reward.
Telecom: The sector has shifted from intense competitors to a extra secure three-player construction after government-backed aid enabled the third operator to stabilise. This materially modifications trade economics. A rational three-player market creates room for calibrated tariff hikes, particularly as costs stay considerably beneath international ranges regardless of India’s world-leading information consumption of ~28 GB per person per thirty days. Current tariff will increase have already improved margins and money flows. As well as, 5G rollout requires community densification, supporting incremental tower demand and providing a structural progress lever for infrastructure gamers. A number of catalysts are converging positioning the sector for a structural re-rating as sturdy profitability rise performs out
Industrial Automobiles: Coverage help, together with the GST lower from 28% to 18%, has unlocked demand. Almost half of the MHCV fleet contains older automobiles, making a sizeable alternative alternative. About 53% of India’s 4.7 million MHCV fleet contains older BS-III/IV automobiles providing a big alternative pool. OEM margins and ROEs are above prior-cycle peaks, but valuations don’t absolutely mirror the potential for a multi-year upcycle.
Built-in Photo voltaic Manufacturing: There are fascinating mispriced alternatives within the Photo voltaic worth chain. As localisation deepens throughout modules, cells and wafers, built-in gamers with technological depth and backward integration are positioned for sustained worth creation, which isn’t but absolutely captured in present valuations.
Are there segments the place you consider the market narrative is stronger than underlying fundamentals?
Sure pockets of the market seem like buying and selling extra on narrative power than on elementary earnings progress potential. In a couple of segments, expectations embedded in valuations appear forward of the underlying progress trajectory.
Sectors corresponding to FMCG and Defence stand out as areas the place valuation seems wealthy relative to fundamentals, whereas Healthcare and IT companies proceed to grapple with progress uncertainties that is probably not absolutely mirrored in valuations.
Demand tendencies within the FMCG area stay gentle, with combination volumes increasing marginally. The anticipated rural rebound has been patchy, whereas city consumption is more and more value-conscious throughout a number of on a regular basis classes. Given the lengthy runway of distribution build-out and premiumisation already achieved, most staple segments corresponding to dwelling care and private care are deeply penetrated, leaving restricted headroom for significant volume-led enlargement. Regardless of this tempered outlook, massive FMCG names nonetheless commerce at elevated earnings multiples, successfully discounting a reacceleration in revenue progress that lacks clear near-term catalysts. General, the sector supplies earnings resilience however restricted upside shock, and relative valuations seem demanding when benchmarked towards sectors exhibiting stronger earnings momentum at comparable or decrease multiples.
Defence shares have witnessed a pointy re-rating pushed by indigenisation, greater capital outlay, and bettering export momentum. The structural alternative stays credible, with multi-year order visibility throughout key platforms. Nevertheless, valuations in a number of names seem to think about exponential order inflows, seamless execution, and sustained margin enlargement concurrently. Whereas Tier-II gamers are seeing increasing addressable alternatives, their working capital cycles stay considerably stretched, making the mannequin structurally capital intensive and infrequently necessitating periodic fairness raises, which might dilute returns and constrain worth creation. Though the long-term runway is undamaged, elements of the sector seem priced for hyper-growth relatively than calibrated execution, rendering the present risk-reward much less compelling at prevailing multiples.
What differentiates a centered fund technique by way of alpha technology in contrast with a diversified method?
A centered fund technique differentiates itself by conviction and place sizing relatively than extensive diversification. Capped at a most of 30 shares, alpha may be generated by deep bottom-up analysis and figuring out companies providing compelling risk-adjusted return potential whether or not pushed by worth dislocation, structural progress, or a mix of each impartial of benchmark weights. The method avoids benchmark hugging, stays sector-agnostic, and supplies flexibility to allocate significant capital to high-conviction concepts, permitting winners to meaningfully affect portfolio outcomes.
Danger in such a concentrated portfolio may be managed by allocating capital throughout companies with differentiated earnings drivers, despite the fact that good non-correlation isn’t achievable in observe. The target is to keep away from clustering publicity to a single macro variable or cycle. Robust place sizing self-discipline, steady thesis assessment, and clear exit frameworks stay important. Mixing structural compounders, selective cyclicals, and defensives with various cash-flow profiles may also help average drawdowns whereas preserving the power to generate outsized alpha.
How do you see the risk-reward evolving within the small and midcap segments?
After a powerful outperformance part by CY23–24, small and midcaps entered CY25 with excessive expectations and crowded positioning. The correction since then has been sharper within the broader market: whereas the Nifty stays barely beneath its September 2024 peak, the BSE Smallcap index is ~15% beneath its peak and the Midcap index ~6% decrease. The earnings downgrade cycle that pressured sentiment over the previous few quarters now seems to be easing, with most estimate cuts possible behind us throughout a number of segments.
Valuations now present a transparent divergence. The Nifty trades close to 3.5x price-to-book versus a long-term median of ~3.2x, implying solely a modest premium. The midcap index nonetheless trades at a significant premium to its historic averages, leaving room for upside. In distinction, the smallcap index has corrected again towards historic median valuations after sharp value erosion in a number of pockets.
With earnings expectations reset, risk-reward seems extra balanced in massive caps and engaging in small caps, whereas midcaps stay comparatively costly on a risk-adjusted foundation. That mentioned, it is a broad market-cap view; in the end, bottom-up inventory choice pushed by analysis determines portfolio risk-return outcomes.
