Edited excerpts from a chat on market outlook and investing strategy:
How do you assess the current market architecture, and where do you see the most compelling risk-reward opportunities over the next 12–18 months?The macro architecture has improved materially. The Budget is behind us, the US-India trade deal is in place, and liquidity conditions have eased meaningfully. The RBI has delivered sizable rate cuts, system liquidity has shifted into surplus, and credit growth, after moderating to 9%-10% has rebounded to 13-14%, with scope for further acceleration. Income tax relief, GST rationalisation and the upcoming pay commission cycle should support disposable income and urban consumption.Externally, the capital account pressures that drove sustained rupee weakness are moderating. Trade agreements with key partners, including the US, UK, EU and UAE, have enhanced external trade visibility. US tariffs on India are competitive relative to Asian peers, restoring export viability. The recent US Supreme Court ruling challenging the executive authority of Trump’s administration behind sweeping tariff measures creates short-term policy uncertainty. However, for India, outcomes appear favourable either way. If the current ~18% tariff framework holds, India remains competitively positioned. If broader tariffs are rolled back, reduced global trade friction would benefit India and other export economies alike. A stabilising rupee, combined with improving trade terms, can revive foreign portfolio flows, potentially creating a virtuous cycle.
This backdrop supports a favourable medium to long-term risk-reward in domestic segments such as discretionary consumption, financials, manufacturing, and select capital goods. Export-oriented manufacturing presents an incremental opportunity.Key risks remain crude price volatility, which could reintroduce macro pressures, and AI-led disruption within legacy IT services.To what extent do you see AI-led disruption altering the competitive landscape for IT services?AI is fundamentally altering the economic structure of IT services. Indian firms face genuine disruption risk in the absence of swift adaptation. The industry has navigated prior technology shifts, such as automation, cloud, and digital transformation, by incorporating change into its delivery model. This time it’s different because AI, particularly agentic workflows, targets the core effort-based revenue engine, including coding, testing, maintenance and support.AI-driven coding assistants and autonomous agents now execute substantial portions of software development and increasingly manage legacy systems with greater precision. As enterprises integrate these tools within delivery frameworks, project cycles shorten, and pricing models shift toward outcomes rather than effort. During this transition, traditional revenue streams in application development, software engineering and parts of BPO could face meaningful pressure.
Valuations of several incumbents already imply muted long-term growth, reflecting scepticism about the durability of labour arbitrage-led delivery models. While this may appear conservative, valuation comfort alone is unlikely to drive a rerating. Incumbents anchored to legacy delivery models are more exposed, while challengers with stronger digital and AI native capabilities are better positioned to gain share. Companies must demonstrate that AI expands their addressable opportunity rather than simply compressing billable effort.
The strategic risk is inertia. Firms that continue to rely primarily on scale, labour arbitrage and incremental automation may face structural margin and growth erosion. The winners will materially increase R&D, build proprietary AI platforms, shift toward outcome-based pricing and embed AI across every layer of delivery. Reinvention is possible, but the window to execute is narrowing.
What is your outlook on the energy transition theme, particularly in renewables and solar, and where do you see scalable, investible opportunities emerging?India’s 500 GW renewable target by 2030, once seen as ambitious, now looks comfortably achievable if current momentum sustains. Solar additions have accelerated sharply, with ~30 GW added in 9MFY26, up from ~24 GW in FY25, bringing cumulative solar capacity to ~136 GW. At this pace, reaching ~280 GW of solar by 2030 appears well within reach.
Demand could surprise on the upside. Data centre capacity is expected to scale up multifold over the next five years, and green hydrogen could become an incremental structural driver of renewable power demand.
Solar remains central to the transition, growing significantly over the last five years, supported by strong corporate and industrial demand, solar pumps under PM KUSUM, and rooftop adoption under PM Surya Ghar. Penetration remains low across these segments. Around 11 lakh solar pumps have been installed so far, but nearly 80 lakh diesel pumps remain available for conversion. Continued budgetary allocation reinforces policy continuity.
The most scalable investible opportunity lies in integrated solar manufacturing. A clear policy roadmap is driving phased indigenisation from modules to cells and, eventually, to wafers. Companies with proven cell efficiencies that are backward integrating into wafers and ingots, while expanding into batteries, inverters and allied electricals, can build durable competitive advantages. Integrated players with technology depth and cost leadership could enjoy a multi-year upcycle that extends beyond simple capacity-addition themes.
Which structural growth areas in India are still underappreciated by the market despite strong long-term fundamentals?Several sectors with improving structural drivers are still not fully valued for their medium-long term earnings trajectory: financials, telecom, commercial vehicles and integrated solar manufacturing.
Financials: Bank earnings have been subdued due to slower credit growth, which moderated to ~9% before recovering to ~13–14%, along with margin compression during the declining interest rate cycle. With liquidity improving and the rate cycle nearing its end, margin pressures should ease, and credit growth is likely to re-accelerate. Private banks continue to trade at reasonable multiples relative to their ROE potential, while PSU banks, after sharp outperformance, offer a less favourable risk-reward.
Telecom: The sector has shifted from intense competition to a more stable three-player structure after government-backed relief enabled the third operator to stabilise. This materially changes industry economics. A rational three-player market creates room for calibrated tariff hikes, especially as prices remain significantly below global levels despite India’s world-leading data consumption of ~28 GB per user per month. Recent tariff increases have already improved margins and cash flows. In addition, 5G rollout requires network densification, supporting incremental tower demand and offering a structural growth lever for infrastructure players. Multiple catalysts are converging positioning the sector for a structural re-rating as durable profitability rise plays out
Commercial Vehicles: Policy support, including the GST cut from 28% to 18%, has unlocked demand. Nearly half of the MHCV fleet comprises older vehicles, creating a sizeable replacement opportunity. About 53% of India’s 4.7 million MHCV fleet comprises older BS-III/IV vehicles offering a large replacement pool. OEM margins and ROEs are above prior-cycle peaks, yet valuations do not fully reflect the potential for a multi-year upcycle.
Integrated Solar Manufacturing: There are interesting mispriced opportunities in the Solar value chain. As localisation deepens across modules, cells and wafers, integrated players with technological depth and backward integration are positioned for sustained value creation, which is not yet fully captured in current valuations.
Are there segments where you believe the market narrative is stronger than underlying fundamentals?Certain pockets of the market appear to be trading more on narrative strength than on fundamental earnings growth potential. In a few segments, expectations embedded in valuations seem ahead of the underlying growth trajectory.
Sectors such as FMCG and Defence stand out as areas where valuation appears rich relative to fundamentals, while Healthcare and IT services continue to grapple with growth uncertainties that may not be fully reflected in valuations.
Demand trends in the FMCG space remain soft, with aggregate volumes expanding marginally. The anticipated rural rebound has been patchy, while urban consumption is increasingly value-conscious across several everyday categories. Given the long runway of distribution build-out and premiumisation already achieved, most staple segments such as home care and personal care are deeply penetrated, leaving limited headroom for meaningful volume-led expansion. Despite this tempered outlook, large FMCG names still trade at elevated earnings multiples, effectively discounting a reacceleration in profit growth that lacks clear near-term catalysts. Overall, the sector provides earnings resilience but limited upside surprise, and relative valuations appear demanding when benchmarked against sectors exhibiting stronger earnings momentum at similar or lower multiples.
Defence stocks have witnessed a sharp re-rating driven by indigenisation, higher capital outlay, and improving export momentum. The structural opportunity remains credible, with multi-year order visibility across key platforms. However, valuations in several names appear to factor in exponential order inflows, seamless execution, and sustained margin expansion simultaneously. While Tier-II players are seeing expanding addressable opportunities, their working capital cycles remain significantly stretched, making the model structurally capital intensive and often necessitating periodic equity raises, which can dilute returns and constrain value creation. Although the long-term runway is intact, parts of the sector appear priced for hyper-growth rather than calibrated execution, rendering the current risk-reward less compelling at prevailing multiples.
What differentiates a focused fund strategy in terms of alpha generation compared with a diversified approach?A focused fund strategy differentiates itself through conviction and position sizing rather than wide diversification. Capped at a maximum of 30 stocks, alpha can be generated through deep bottom-up research and identifying businesses offering compelling risk-adjusted return potential whether driven by value dislocation, structural growth, or a blend of both independent of benchmark weights. The approach avoids benchmark hugging, remains sector-agnostic, and provides flexibility to allocate meaningful capital to high-conviction ideas, allowing winners to meaningfully influence portfolio outcomes.
Risk in such a concentrated portfolio can be managed by allocating capital across businesses with differentiated earnings drivers, even though perfect non-correlation is rarely achievable in practice. The objective is to avoid clustering exposure to a single macro variable or cycle. Strong position sizing discipline, continuous thesis review, and clear exit frameworks remain essential. Blending structural compounders, selective cyclicals, and defensives with varied cash-flow profiles can help moderate drawdowns while preserving the ability to generate outsized alpha.
How do you see the risk-reward evolving in the small and midcap segments?After a strong outperformance phase through CY23–24, small and midcaps entered CY25 with high expectations and crowded positioning. The correction since then has been sharper in the broader market: while the Nifty remains slightly below its September 2024 peak, the BSE Smallcap index is ~15% below its peak and the Midcap index ~6% lower. The earnings downgrade cycle that pressured sentiment over the past few quarters now appears to be easing, with most estimate cuts likely behind us across several segments.
Valuations now show a clear divergence. The Nifty trades near 3.5x price-to-book versus a long-term median of ~3.2x, implying only a modest premium. The midcap index still trades at a meaningful premium to its historical averages, leaving room for upside. In contrast, the smallcap index has corrected back toward historical median valuations after sharp price erosion in several pockets.
With earnings expectations reset, risk-reward appears more balanced in large caps and attractive in small caps, while midcaps remain relatively expensive on a risk-adjusted basis. That said, this is a broad market-cap view; ultimately, bottom-up stock selection driven by research determines portfolio risk-return outcomes.
