Edited excerpts from a chat:
In your Focused Equity Fund, how does a concentrated portfolio of about 30 stocks help generate alpha and outperform the benchmark?
A concentrated strategy tends to amplify both conviction and outcomes. With a limited number of holdings, the approach tends to be that only high-conviction ideas enter the portfolio, each carrying meaningful weight. Hence, this approach carries relatively higher risk due to elevated position sizes but tends to offer commensurately higher reward when investment theses are executed well. Typical stock weights average 3–4% and may go up to 10%.
In such a portfolio, what is the starting weight for a new stock idea?
A minimum starting allocation of 2% is maintained, with scope to scale up to a maximum permissible 10% depending on conviction and portfolio construction requirements.
How has sector positioning within IT evolved, especially amid concerns of slow earnings growth and weak stock performance?
We were underweight IT until mid-2025, post which we moved to an overweight stance. This shift was driven by more than 10% relative underperformance by the IT sector versus the broader market, improving visibility of bottoming corporate tech spending in the US and Europe, and strong deal wins which was reflective in second-quarter results. While revenue growth is likely to be visible with a lag, deal momentum indicates that enterprise tech spending is likely to stabilize. Additionally, a softer outlook on the domestic currency provided incremental support. The investment framework endeavors to take positions in sectors when the risk-reward trade-off appears to be favourable, particularly when overhangs begin to ease and catalysts for recovery become visible.
With expectations of broad double-digit earnings growth next year, how has portfolio positioning evolved across market capitalisations?
The strategies I manage predominantly tend to invest in mid and largecap stocks, with limited smallcap exposure. Alpha generation is driven largely by bottom up stock selection. Two years ago, the portfolio was overweight capital goods and related sectors. Over time, this exposure shifted toward consumption-driven segments which includes automobiles, consumer discretionary and staples, and building materials, given the view that low-ticket consumption had undergone a prolonged slowdown and was likely positioned for recovery. Recent reductions in income tax and GST has supported this thesis. While consumption recovery is yet to translate into a broad rally, the portfolio is largely positioned ahead of that cycle. We believe private capex could take slightly longer to revive, while government capex is expected to remain focused on power and defence areas.
How is innovation approached in the dedicated Innovation Fund, especially given India’s limited direct participation in emerging themes like AI and deep tech?
The endeavor here is to invest in companies that have the propensity to gain market share. We are of the view that innovation is one of the fundamental drivers for organizations to sustainably expand their market share. Innovation could be product led, service led or cost led. The investment universe can be classified into three broad buckets. First, traditional leaders innovating within their industries, such as auto and telecom companies deploying advanced technologies to gain market share. Second, companies directly exposed to new-age trends, such as digital advertising, solar, GPU-linked EMS players, and specialty pharma with complex product pipelines and third, platform-based businesses that represent business-model innovation, reshaping consumer behavior, and industry structures.
Currently, within the listed universe, there are six themes that broadly tend to define the innovation landscape. These are defense (electronic warfare, satellites), automobiles (EV and hybrids), pharma (Specialty / Complex Generics), IT services (as enablers of cloud and AI transitions), digital platforms, and energy transition play (solar, EPC, module, and cell manufacturing). The objective here is to construct a long-term, cycle-resilient portfolio of reasonably valued, high-growth companies where innovation serves as a core driver.
Given the fund’s overweight position in IT, is there concern that Indian IT firms have been left behind in the AI cycle?
We believe Indian IT is largely well-positioned because global AI adoption is still in its pilot stage, particularly in enterprise environments. As AI implementation moves to full-scale deployment, IT services companies are likely to play a central role as solution providers and system integrators. Indian IT companies are not focused on product development but on enabling enterprise-wide AI adoption, an area where demand is expected to accelerate. Even when it comes to coding, automation of code generation has been underway for over a decade. The only change now is that AI may accelerate it. Lower coding costs could help expand the universe of software development, supporting higher innovation across enterprises. Firms leveraging AI for revenue expansion are likely to benefit more than those viewing it solely through a cost-saving lens.
In the context of the ongoing rate-cut cycle, how is the outlook for banking and financial services shaping up?
The outlook seems to be turning incrementally constructive, especially for large private sector banks. While rate cuts may create near-term pressure on margins, the broader picture over a two-year horizon appears largely favourable. As policy rates stabilise, earnings headwinds are likely to ease, deposits will be largely repriced, and the credit-growth cycle could strengthen. Trends in NIMs, credit growth, credit costs, potential FII inflows and valuations collectively seem to create a constructive medium-term stance.
How does this view compare with the outlook for PSU banks?
PSU bank valuations have rerated. Their lending portfolios tend to have lower margins. Since credit costs have remained largely benign for an extended period, there appears to be limited room for positive surprise. Given the potential earnings sensitivity to even minor changes in credit cost assumptions, the risk-reward appears to be less favourable.
Which segments of the market currently offer valuation comfort?
Technology and large private banks seem to be reasonably valued. NBFCs appear expensive but the near term outlook remains positive. Consumer stocks remain high valuation pockets but could still witness re-rating if earnings growth accelerates supported by GST gains, narrowing price gaps with unorganised players, rising wages in blue-collar segments, and potential revival in low-ticket consumption. Overall, the market appears to be in a moderate-return environment, supported by healthy corporate balance sheets, controlled fiscal conditions, potential reversal in FII flows, accommodative policy stance from the central bank, and a pending catalyst in the form of US-India trade agreement. However, despite improving sentiment, elevated starting valuations could cap overall returns.
Are there any contra opportunities that stand out for the new year?
Several power and cooling-related names, including AC manufacturers, have underperformed and may see reversal as weather normalises. Cement also appears increasingly (low conviction) contrarian, with consolidation potential and slight improvement in industry dynamics despite its commodity characteristics.
