Edited excerpts from the chat:
Given the valuation environment in largecaps today, how do you strike a balance between quality names and growth opportunities in your largecap funds? How attractive are valuations in largecaps now after a year of consolidation?
Mostly, we don’t allocate basic market caps but more top down growth themes and underlying growth is driven by bottom up stock picking. But, we continue to recommend our partners and investors to balance their portfolios in largecaps or flexicap funds.
Which sectors or business models do you favor in the largecap universe and which ones are you avoiding or underweighting?
We have over 30% weightage on the large BFSI sector followed by IT, Petroleum, Construction, Telecom and Auto. This is done with the belief of strong earnings growth in the coming quarters and availability at reasonable valuations. Our portfolio is very broad based on sector allocation and diversification for good companies on themes. We have also diversified the portfolio with highly selected mid and small caps in spaces like real estate, consumer, household services and IT hardware.
Q2 How do you adjust your portfolio after earnings season? Which sectors look best for higher earnings growth in CY2026?
We haven’t made any significant changes based on last quarter’s earnings, but the banking position has been relatively high – with better earnings growth and improved margins and fair valuations. We have included insurance, asset management companies and exited some mid-cap IT names.
Financials comprise about 1/3 of your portfolio. What is behind this overweight trend?
Large banks have underperformed the broader markets for several years, with good results from many banks and guidance for improving NIMs, lower credit costs and an expected pick-up in credit growth – a belief that the sector could perform better in the coming quarters.
Among large private banks, small private banks and PSU banks, which banks do you think will perform better in 2026?
We are overweight on large private sector banks in which we have a large PSU bank. We are also overweight on financials with many NBFCs.
Where do you see thematic opportunities for the next 12-18 months (for example, consumption, financials, infrastructure, data centers)?
We have identified several themes that have the potential to deliver high growth over the next 24 months. ‘Manufacturing’ is a big theme with the government’s focus on Make in India Couple with China + 1 story and tax reform in the corporate sector clearly gives a lot of confidence. ‘Consumption’ is another important theme with recent reforms like GST 2.0, rationalization of tax slabs and lower cost of capital has boosted consumer spending and companies will benefit from increased demand. ‘New Age Digital Companies’ is also one of our top themes from a long-term perspective. Other themes include mid-cap IT, financials, healthcare.
2025 has been a washout year for IT. Given the valuation, do you see a reversal likely next year?
We still see signs of growth in the IT sector, especially in the large IT companies on the software side. Given the slower growth in the US, we are seeing lower spending by companies in the tech space and as a result guidance from top IT companies has also been muted for the past few quarters. Therefore, we will wait for a positive signal on earnings recovery when valuations are compelling and which can be sustained over the medium to long term. However, we continue to reasonably allocate MID IT names who are not necessarily in the software business but focus on areas that are more inclusive and specialized in the fields of platforms, IOTA and cloud computing.
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