Edited excerpts from a chat with Sanjay Doshi, Head of Investment & Research – Abakkus Mutual Fund:
How are you reading the current market cycle? Are we anywhere close to entering the bull cycle again or has the Iran war made the journey tougher for the next few quarters?
When we look at Indian GDP and corporate earnings growth, we have seen encouraging improvement over the last 2- 3 quarters. GDP growth has improved from 5.6% to ~7-7.5% and corporate earnings growth has moved from 2-3% Y-o-Y to around 9-10%, with mid and small cap segments doing better with mid teen Y-o-Y growth. This improvement has largely been driven by government support through income tax cuts, GST rationalization and RBI’s liquidity boost initiatives and interest rate cuts that have helped revive consumption demand. Government expenditure has also seen improvement towards productive areas, in recent years, supporting capex demand.Indian markets have consolidated over the last 15-18 months, and with a revival in growth, valuations have turned reasonable and in some market segments even attractive from 2-3 year perspective. Consequently, India appeared well positioned on a positive growth trajectory, and the overall market structure looked conducive for an upcycle.
However, the ongoing West Asia conflict now poses near-term challenges. There may be some impact on demand for certain export markets and more significant impact on costs due to the sharp increase in near-term energy and transportation costs. Given this backdrop, the near-term environment looks challenging, and markets may remain volatile and range bound. During this time, factors such as earnings visibility and macroeconomic stability will be particularly important.
Once oil prices settle and global macro conditions turn more supportive, Indian market upcycle should resume, likely at a steady and gradual pace.
What is the kind of earnings risk spillover that you see from the war?
The earnings spillover from the Iran conflict is likely to be more margin‑driven than demand‑driven, with cost pressures outweighing any immediate consumption slowdown. The surge in energy, logistics and insurance costs can erode margins, particularly for sectors with limited pricing power. Currency volatility introduces another mixed layer of impact across sectors. Taken together, these factors point toward a phase of earnings moderation, where selective earnings pause, or mild downgrades might happen rather than a broad‑based earnings downgrade cycle.
We remain optimistic that the conflict will be resolved in near term and therefore expect the impact to be limited to quarter or two, with the maximum impact likely to be reflected in 1Q FY27.
Which sectors are structurally best placed over the next 3–5 years – manufacturing, financials, consumption, or new-age themes?
From a 3-5 year time frame, we remain positive on financials, manufacturing, pharmaceuticals and premium consumption segments. New-age themes or new-age sectors such as semiconductors, digital technologies, electric vehicles, renewables, defence, etc show the growth potential and are well poised to contribute to the next growth phase of India’s economic expansion.
Financial services continue to strengthen on the back of robust balance sheets, rising credit demand, and improving asset quality, reinforcing their long‑term growth potential. As the Indian economy continues to grow at 7% – 8% in real terms, we see significant opportunities for market participants as well as fintech companies.
Manufacturing, particularly export‑oriented and niche segments, retains a strong multi‑year runway led by the ongoing capex cycle, global supply‑chain diversification, long term FTAs (Free Trade Agreements) with large economies like European Union, UK and others and policy initiatives like production-linked incentives that continue to enhance domestic competitiveness.
Consumer discretionary may experience some near‑term demand softness due to inflation, but structurally remains robust as rising incomes, premiumization, and urban consumption trends continue to fuel multi‑year expansion. Pharma provides defensive stability, supported by export tailwinds driven by global demand, innovation, and diversified product portfolios, while also remaining relatively insulated from commodity‑price shocks.
Can you break down the MEETS framework and how it practically influences stock selection?
Our unique MEETS framework brings a sharp, disciplined structure to stock selection process by integrating five foundation pillars – Management quality, Earnings visibility, Events or Trends, Timing, and Structural opportunity.
Management and structural filters help identify businesses truly worth owning, while Earnings quality strengthens conviction around sustainability of their growth. Events and trends act as catalysts that can drive re-rating or provide market opportunities, Timing ensures discipline around valuations and market expectations and Structural opportunities provide scope to identify winners in new emerging and sunrise sectors.
The process begins with evaluating management capability, capital‑allocation discipline and fairness to minority shareholders. We then assess the durability and quality of earnings, distinguishing structural strength from cyclical swings, and favor companies that demonstrate meaningful scalability. The events/trends lens captures disruptions, industry shifts, and upcoming triggers that may influence performance. The timing filter focuses on what the market is already pricing in, the scope for mean reversion, and whether the stock offers an attractive entry point. Finally, the structural assessment gauges the long‑term growth runway, competitive positioning, and consistency in profit generation.
Collectively, MEET framework ensures that stock selection is not just about finding good businesses, but about investing in them with the right conviction and valuation, making it a holistic and powerful framework for building a portfolio with sustainable growth potential and favourable risk‑reward dynamics.
In your flexi cap fund, what strategy are you adopting in terms of allocation towards smallcaps and midcaps?
In our Flexi Cap Fund, we are following a balanced yet opportunity‑driven approach across market caps, with a notable yet selective tilt towards small-caps stocks. As of February 26, our total allocation to SMID stocks was around 48% of which around 29% was specifically in small caps. This positioning reflects the attractive risk‑reward, we currently see in quality small‑cap names and niche mid‑cap leaders. The portfolio is designed with a healthy mix of established leaders and emerging potential winners, supported by meaningful conviction‑based allocations.
While we remain mindful of near‑term volatility, our allocation is driven by bottom‑up conviction anchored in our investment philosophy, MEETS framework, and disciplined risk mitigation process. This approach allows us to participate in the most compelling opportunities across the market‑cap spectrum while staying aligned with long‑term wealth‑creation objectives.
At an overall level, do you think the smallcap space is getting more attractive? Is valuation still a concern in pockets?
After the recent correction, the small‑cap segment has become meaningfully more attractive, with many small cap stocks now trading well below their all‑time highs. This broad‑based price reset has brought valuations to more reasonable levels, creating an attractive entry point for long‑term investors. The consolidation has helped normalize earlier excesses, strengthened the linkage between earnings and valuations, and set the stage for more constructive bottom -up stock selection. However, despite this improvement, pockets of the market still remain expensive, especially where earnings growth can see some moderation due to impact from geopolitical events. Overall, the opportunity set is stronger today, but selectivity and valuation discipline remain essential to capturing the best opportunities in this space.
Is this a good time to allocate fresh money into small caps, or should investors stagger entries?
Small‑caps look more attractive after the recent reset; however, given the current market environment and volatility, the prudent approach for most investors is to stagger allocations via SIP/STP over the next few months. This builds exposure at better average prices and uses volatility to your advantage rather than trying to time the market. As the small‑cap opportunity set has become more selective, pair staggered allocations with regular monitoring of portfolio quality and performance. In short, the backdrop has improved, but selectivity and staggered entry remain the smarter way to capture it.
Private banks are looking attractive on a valuation basis while the growth story looks more promising in PSU banks for the next few quarters. Would you agree to that?
There is merit in that view: large private banks look attractive on valuations after the recent correction, while PSU banks show near‑term growth momentum. That said, we do not take blanket “Private vs PSU” calls- we aim to build exposure stock by stock, weighing trade‑offs. In general, PSU banks are more cyclical, while private banks offer greater predictability and longevity of growth, so we express the view through bottom‑up stock selection as we build our exposure in banking space.
Given the geopolitical tensions, do you think crude oil is now the biggest data for investors to track? At what level do you think you will start raising more cash rather than deploying money?
Yes, for the near term, crude oil remains one of the key data points for investors to track. That said, it is important to appreciate that crude oil intensity of India’s GDP has declined over the years, supported by improvement in energy efficiency and rising share of non-fossil energy sources
From an investment and portfolio perspective, we continue to follow a disciplined approach in line with our investment philosophy, MEETS framework and robust risk management guidelines.
We seek to mitigate the adverse macro impact of higher crude prices at a portfolio level, and we believe the current higher crude prices are likely to normalize soon, as we remain optimistic of de-escalation in ongoing West Asia conflict.