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 price cuts, system liquidity has shifted into surplus, and credit score development, after moderating to 9%-10% has rebounded to 13-14%, with scope for additional acceleration. Revenue tax reduction, GST rationalisation and the upcoming pay fee cycle ought to help disposable revenue and concrete consumption.Externally, the capital account pressures that drove sustained rupee weak point 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 Court docket ruling difficult the manager authority of Trump’s administration behind sweeping tariff measures creates short-term coverage uncertainty. Nevertheless, for India, outcomes seem beneficial both manner. If the present ~18% tariff framework holds, India stays competitively positioned. If broader tariffs are rolled again, lowered world commerce friction would profit India and different export economies alike. A stabilising rupee, mixed with bettering commerce phrases, can revive overseas portfolio flows, doubtlessly making a virtuous cycle.
This backdrop helps a beneficial medium to long-term risk-reward in home segments reminiscent of discretionary consumption, financials, manufacturing, and choose capital items. Export-oriented manufacturing presents an incremental alternative.
Key dangers stay crude worth volatility, which may reintroduce macro pressures, and AI-led disruption inside legacy IT providers.
To what extent do you see AI-led disruption altering the aggressive panorama for IT providers?
AI is basically altering the financial construction of IT providers. Indian corporations face real disruption threat within the absence of swift adaptation. The trade has navigated prior know-how shifts, reminiscent of automation, cloud, and digital transformation, by incorporating turn into its supply mannequin. This time it’s completely different as a result of AI, significantly 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 methods with better precision. As enterprises combine these instruments inside supply frameworks, mission cycles shorten, and pricing fashions shift towards outcomes quite than effort. Throughout this transition, conventional income streams in utility growth, software program engineering and elements of BPO may face significant strain.
Valuations of a number of incumbents already suggest muted long-term development, reflecting scepticism concerning the sturdiness of labour arbitrage-led supply fashions. Whereas this may increasingly 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 realize share. Firms should exhibit that AI expands their addressable alternative quite than merely compressing billable effort.
The strategic threat is inertia. Corporations that proceed to rely totally on scale, labour arbitrage and incremental automation could face structural margin and development 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 vitality transition theme, significantly 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 formidable, now seems to be 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 effectively inside attain.
Demand may shock on the upside. Information centre capability is predicted to scale up multifold over the subsequent 5 years, and inexperienced hydrogen may grow to be an incremental structural driver of renewable energy demand.
Photo voltaic stays central to the transition, rising considerably over the past 5 years, supported by sturdy company and industrial demand, photo voltaic pumps underneath PM KUSUM, and rooftop adoption underneath PM Surya Ghar. Penetration stays low throughout these segments. Round 11 lakh photo voltaic pumps have been put in up to now, however practically 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 are backward integrating into wafers and ingots, whereas increasing into batteries, inverters and allied electricals, can construct sturdy aggressive benefits. Built-in gamers with know-how depth and value management may get pleasure from a multi-year upcycle that extends past easy capacity-addition themes.
Which structural development areas in India are nonetheless underappreciated by the market regardless of sturdy long-term fundamentals?
A number of sectors with bettering structural drivers are nonetheless not totally 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 resulting from slower credit score development, which moderated to ~9% earlier than recovering to ~13–14%, together with margin compression through the declining rate of interest cycle. With liquidity bettering and the speed cycle nearing its finish, margin pressures ought to ease, and credit score development is prone to re-accelerate. Non-public 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 reduction enabled the third operator to stabilise. This materially adjustments trade economics. A rational three-player market creates room for calibrated tariff hikes, particularly as costs stay considerably under world ranges regardless of India’s world-leading knowledge consumption of ~28 GB per consumer monthly. Latest 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 development lever for infrastructure gamers. A number of catalysts are converging positioning the sector for a structural re-rating as sturdy profitability rise performs out
Business Autos: 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 substitute alternative. About 53% of India’s 4.7 million MHCV fleet contains older BS-III/IV automobiles providing a big substitute pool. OEM margins and ROEs are above prior-cycle peaks, but valuations don’t totally replicate 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 totally captured in present valuations.
Are there segments the place you imagine the market narrative is stronger than underlying fundamentals?
Sure pockets of the market seem like buying and selling extra on narrative energy than on elementary earnings development potential. In just a few segments, expectations embedded in valuations appear forward of the underlying development trajectory.
Sectors reminiscent of FMCG and Defence stand out as areas the place valuation seems wealthy relative to fundamentals, whereas Healthcare and IT providers proceed to grapple with development uncertainties that will not be totally mirrored in valuations.
Demand traits within the FMCG area stay mushy, 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 reminiscent of residence care and private care are deeply penetrated, leaving restricted headroom for significant volume-led growth. Regardless of this tempered outlook, giant FMCG names nonetheless commerce at elevated earnings multiples, successfully discounting a reacceleration in revenue development that lacks clear near-term catalysts. Total, the sector gives 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 consider exponential order inflows, seamless execution, and sustained margin growth concurrently. Whereas Tier-II gamers are seeing increasing addressable alternatives, their working capital cycles stay considerably stretched, making the mannequin structurally capital intensive and sometimes necessitating periodic fairness raises, which may dilute returns and constrain worth creation. Though the long-term runway is undamaged, elements of the sector seem priced for hyper-growth quite than calibrated execution, rendering the present risk-reward much less compelling at prevailing multiples.
What differentiates a targeted fund technique when it comes to alpha era in contrast with a diversified strategy?
A targeted fund technique differentiates itself by way of conviction and place sizing quite than broad diversification. Capped at a most of 30 shares, alpha may be generated by way of deep bottom-up analysis and figuring out companies providing compelling risk-adjusted return potential whether or not pushed by worth dislocation, structural development, or a mix of each impartial of benchmark weights. The strategy avoids benchmark hugging, stays sector-agnostic, and gives 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 excellent non-correlation is never 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 evaluation, and clear exit frameworks stay important. Mixing structural compounders, selective cyclicals, and defensives with diverse cash-flow profiles can assist 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 robust outperformance part by way of 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 under its September 2024 peak, the BSE Smallcap index is ~15% under 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 probably 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 worth erosion in a number of pockets.
With earnings expectations reset, risk-reward seems extra balanced in giant caps and engaging in small caps, whereas midcaps stay comparatively costly on a risk-adjusted foundation. That stated, this can be a broad market-cap view; finally, bottom-up inventory choice pushed by analysis determines portfolio risk-return outcomes.
