Latest news with #QuestInvestmentAdvisors
Economic Times
4 days ago
- Business
- Economic Times
ETMarkets Smart Talk: From quality to timing – here is closer look at QUEST framework powering stock picks at Quest investment, says Rajkumar
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads In this episode of ETMarkets Smart Talk, Rajkumar, CEO of Quest Investment Advisors, shares insights into the firm's proprietary QUEST framework—a disciplined, five-point approach that guides their stock selection focusing on the Quality of businesses and management to ensuring the right Timing for long-term compounding, Rajkumar explains how the framework helps navigate a market increasingly driven by highlights why understanding a business, identifying earnings inflection points, and prioritizing superior risk-reward opportunities are key to generating sustainable returns, especially in today's stock picker's market . Edited Excerpts – Nifty closed with marginal gains in June, but for the first six months of 2025 – it is up over 7%. How do you see markets for the rest of FY26? Any big events to watch out for?A) Absolutely—while the headline numbers look stable, there's a lot brewing beneath the surface, both globally and the global front, the biggest overhang remains the U.S. tariff situation. Although India has not been targeted directly, the absence of a formal trade resolution still leaves room for market is pricing in a potential positive outcome, but recent steep tariffs announced by President Trump on 14 countries—including Japan and South Korea—could create ripple effects across global supply chains. This adds to the broader geopolitical risk U.S. Federal Reserve is another key variable. It paused rate cuts in December 2024 and is now waiting to see how inflation behaves—especially in response to tariffs—before resuming any easing cycle. Any clarity here could be a strong directional we are in the late stages of the monetary policy cycle. The RBI has already front-loaded much of its easing through rate cuts and a CRR one or two rate cuts might still be on the table, they're likely to be spaced out. Importantly, liquidity remains abundant, which should continue to support credit growth and market most critical catalyst going forward will be the earnings cycle. FY25 saw lacklustre earnings growth, which capped market momentum.A meaningful rebound in Q1 and Q2 of FY26 will be key—strong earnings can justify current valuations and drive further inflows from both domestic and global worth watching are flows into Indian equities via SIPs and FPI activity—both remain resilient so far. If macro stability and earnings recovery come through, we believe the Nifty breaching its all-time high before the end of 2025 is not just possible, but probable.A) We approach portfolio management with a structured and disciplined process. Our review framework includes quarterly earnings, monthly business updates, annual reports, industry developments, and broader macro also treat market prices as a useful feedback mechanism—they help us challenge our assumptions, but they don't drive our first half of 2025 was undoubtedly testing. Volatility picked up after a very strong second half of 2024, and naturally, we asked ourselves whether any structural changes were after careful analysis, we concluded this was more of a healthy correction rather than a fundamental breakdown. So, we held our positions with conviction—and that discipline is paying off as markets retrace towards their earlier key learning has been to stay anchored in process and avoid reacting to noise. In hindsight, not over-engineering the portfolio during turbulent phases has added more value than chasing tactical we look ahead, we remain focused on long-term secular trends and deepening client engagement—those continue to be our north stars.A) Yes, that's broadly accurate — corporate earnings have significantly outpaced GDP growth since FY20, and there are several structural factors at the recovery from the COVID-induced low base in FY20 gave a natural boost to earnings. But more importantly, FY22 and FY23 saw strong topline growth, aided by high commodity prices and robust demand across sectors. Even adjusting for the base effect, revenue momentum has remained have also expanded meaningfully. Companies focused heavily on cost optimization and supply chain efficiencies during the pandemic, and those gains have of the economy post-GST has improved compliance, reducing leakage and boosting operational efficiencies — especially for larger, organized the financial sector, improved asset quality and lower provisioning requirements have driven strong bottom-line growth, along with some one-off India has also become more disciplined with capex, leading to better capital allocation, strong free cash flow generation, and widespread short, a combination of operating leverage (higher margins on stable revenues), financial leverage (lower interest and provisioning costs), and structural tailwinds like GST, digital adoption, and improved governance standards have all played a role in this forward, if this discipline continues and demand remains resilient, India Inc. could sustain a higher earnings growth trajectory than nominal GDP for some time.A) The China+1 strategy is no longer just a narrative — it's translating into real capital flows, and India is emerging as a key structural advantages work in our favour: a large, low-cost labour pool, a strong STEM talent base, and a proactive government that's aligned on improving ease of doing business and building critical well-positioned to benefit include:● Pharmaceuticals and Specialty Chemicals: India has long been a trusted supplier of generics and intermediates. What's changed is the global desire to derisk China exposure. For instance, the U.S. and EU have been actively looking to source key APIs (Active Pharmaceutical Ingredients) from India. Similarly, specialty chemicals used in agrochemicals and electronics are seeing capex announcements from global firms, especially in Gujarat and Maharashtra.● Electronics Manufacturing: Driven by the Production Linked Incentive (PLI) scheme, India has seen companies like Foxconn, Pegatron, and Tata Electronics commit billions to building mobile phone and component facilities. A striking example is how Apple now assembles iPhones in India, which a few years ago would have been unthinkable at scale.● Semiconductors and ATMP (Assembly, Testing, Marking, Packaging): While India is still early in chip fabrication, the backend ecosystem is gaining traction. Micron's investment in Gujarat for an ATMP facility is a landmark development. The fact that a U.S. semiconductor major chose India for its first such investment speaks volumes.● Auto Components: With EV adoption rising globally, India is becoming a hub for certain key parts, especially for two-wheelers and small cars. Several Japanese and German Tier-1 suppliers are expanding their Indian footprint to serve both local and global OEMs.● Renewables and Green Manufacturing: India's solar panel, battery, and green hydrogen sectors are receiving a strong policy push. Companies like Reliance and JSW have announced massive investments here, and foreign players are beginning to collaborate as working is not just the cost advantage — it's the credibility India has gained in key global supply chains. A good anecdote: Apple's India-made iPhones made up nearly 7% of global iPhone production in 2023, up from less than 1% just three years prior. That kind of scale-up tells us the shift is real, not just aspirational.A) Investing is more about behaviour than anything else. Fixed income plays a crucial role in any long-term portfolio—not necessarily for maximizing returns, but for bringing in balance, stability, and equities tend to outperform other asset classes over long periods, they come with cycles of volatility that can test investor a wide spectrum within fixed income as well—ranging from ultra-safe instruments like short-duration government bonds to higher-yielding, credit-risk-bearing assets like corporate bonds or even distressed debt. Investors should allocate based on their time horizon, liquidity needs, and risk a thumb rule, any money you expect to need in the next 2–3 years should ideally be parked in lower-risk fixed income instruments. For longer-term allocations, a mix of duration and credit strategies can enhance overall portfolio resilience and reduce drawdowns during equity in a structurally declining interest rate environment or during periods of high policy uncertainty, fixed income can deliver decent risk-adjusted asset allocation is less about chasing returns and more about managing emotions. And fixed income is a strong enabler of that discipline.A) From our perspective, several structural themes continue to play out, and our portfolio positioning reflects remain overweight on consumer discretionary, healthcare, NBFCs and HFCs, as well as the broader travel and tourism space—each benefiting from cyclical tailwinds and steady domestic demand.A key focus area for us is capex-linked plays, especially in power and industrials. What's particularly noteworthy is that private capex is now beginning to outpace public spending for the first time in over a shift has meaningful implications for capital goods, construction, and certain segments of also selectively positioned in IT. While the sector as a whole remains under pressure, we are avoiding broad exposure and instead focusing on companies with resilient margins, robust order books, and strong digital transformation we continue to back businesses aligned with domestic growth engines and those demonstrating pricing power, balance sheet strength, and earnings visibility.A) Absolutely—we believe the broad-based rally is behind us, and we are firmly in a stock picker's market now. The easy gains from riding sectoral or index-wide moves are giving way to a more nuanced phase where individual company fundamentals will drive Quest, stock selection has always been core to our philosophy. We follow what we call the QUEST Way—a disciplined framework that guides our decision-making:● Q stands for Quality of business and management. We seek companies with strong governance and durable competitive advantages.● U is for Understanding—if you can't understand a business, you shouldn't own it. Simplicity often outperforms complexity.● E is about Earnings potential—especially the ability to identify inflection points where earnings growth may accelerate.● S represents Superior risk-reward—we look for asymmetry, where downside is limited but upside is meaningful.● T reminds us of Timing—not in the sense of market timing, but the discipline of spending enough time in the market to allow compounding to these traits are timeless, sector context matters too. Given that most businesses are cyclical, we often apply a sectoral filter based on our macro and industry views. Once a sector is identified as attractive, the focus shifts to bottom-up stock picking using the QUEST FY26, success will hinge less on riding market beta and more on precision—identifying the right businesses at the right stage of their journey.A) Gold has been in a strong uptrend over the past few years, and 2025 has been no exception—with year-to-date returns of around 38%. This rally has been underpinned by a confluence of structural drivers: persistent geopolitical tensions, gold's role as an inflation hedge, rising concerns around U.S. fiscal discipline, and a global shift towards de-dollarization.A notable trend has been the surge in central bank demand—while average annual purchases a decade ago hovered around 400–500 tonnes, they've consistently crossed 1,000 tonnes in each of the past three this backdrop, some tactical profit booking may be justified after the sharp run-up. However, from a strategic allocation standpoint, gold remains a valuable diversifier in long-term case remains intact, especially as global macro uncertainties continue to linger. Adding on dips could be a prudent approach rather than exiting altogether.A) In FY25, midcaps delivered robust earnings growth of around 15%, clearly outpacing large caps, which saw more muted growth of 5–6%. On the other hand, small caps underperformed meaningfully, with earnings declining by over 15%, reflecting the inherent volatility in that ahead to FY26, large cap earnings are expected to improve gradually, aided by base effects and cyclical recovery in a few key while still enjoying stronger earnings momentum, are now trading at a valuation premium to both large and small caps — suggesting that returns may be more in line with earnings growth rather than driven by further caps, despite their recent earnings dip, are projected to grow earnings by 15%+ in FY26, but the dispersion is going to be high. That calls for a more selective, bottom-up approach, focusing on balance sheet strength, management quality, and midcap rally has been largely earnings-led, not just liquidity-driven — and that's a good sign. But with valuations elevated, investors need to be small caps, it's less about the index and more about identifying the next multibaggers over the mid-term horizon — which requires patience, research depth, and position sizing.A) That's a tough one to reply. Rather than taking a purely sector-specific view, we prefer to look at individual stocks within each sector. In our view, the more relevant question for investors is: Has too much of the future earnings potential already been priced in?If valuations have run significantly ahead of fundamentals it may be prudent to pare positions. This is especially true when the current stock price implies a level of growth and profitability that may be hard to sustain given macro or competitive we believe stock selection should be driven by bottom-up conviction. Even in sectors facing near-term headwinds, there can be standout businesses with durable moats and pricing power. But where expectations have outrun earnings visibility, it's wise to be cautious.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Time of India
4 days ago
- Business
- Time of India
ETMarkets Smart Talk: From quality to timing – here is closer look at QUEST framework powering stock picks at Quest investment, says Rajkumar
In this episode of ETMarkets Smart Talk, Rajkumar, CIO of Quest Investment Advisors, shares insights into the firm's proprietary QUEST framework—a disciplined, five-point approach that guides their stock selection process. From focusing on the Quality of businesses and management to ensuring the right Timing for long-term compounding, Rajkumar explains how the framework helps navigate a market increasingly driven by fundamentals. He highlights why understanding a business, identifying earnings inflection points, and prioritizing superior risk-reward opportunities are key to generating sustainable returns, especially in today's stock picker's market . Edited Excerpts – Q) Thanks for taking the time out. Nifty closed with marginal gains in June, but for the first six months of 2025 – it is up over 7%. How do you see markets for the rest of FY26? Any big events to watch out for? A) Absolutely—while the headline numbers look stable, there's a lot brewing beneath the surface, both globally and domestically. On the global front, the biggest overhang remains the U.S. tariff situation. Although India has not been targeted directly, the absence of a formal trade resolution still leaves room for uncertainty. The market is pricing in a potential positive outcome, but recent steep tariffs announced by President Trump on 14 countries—including Japan and South Korea—could create ripple effects across global supply chains. This adds to the broader geopolitical risk premium. The U.S. Federal Reserve is another key variable. It paused rate cuts in December 2024 and is now waiting to see how inflation behaves—especially in response to tariffs—before resuming any easing cycle. Any clarity here could be a strong directional trigger. Domestically, we are in the late stages of the monetary policy cycle. The RBI has already front-loaded much of its easing through rate cuts and a CRR reduction. While one or two rate cuts might still be on the table, they're likely to be spaced out. Importantly, liquidity remains abundant, which should continue to support credit growth and market sentiment. The most critical catalyst going forward will be the earnings cycle. FY25 saw lacklustre earnings growth, which capped market momentum. A meaningful rebound in Q1 and Q2 of FY26 will be key—strong earnings can justify current valuations and drive further inflows from both domestic and global investors. Also worth watching are flows into Indian equities via SIPs and FPI activity—both remain resilient so far. If macro stability and earnings recovery come through, we believe the Nifty breaching its all-time high before the end of 2025 is not just possible, but probable. Q) How are you managing the volatility in your portfolio? Any key learnings which you would like to share from 1H2025? A) We approach portfolio management with a structured and disciplined process. Our review framework includes quarterly earnings, monthly business updates, annual reports, industry developments, and broader macro signals. We also treat market prices as a useful feedback mechanism—they help us challenge our assumptions, but they don't drive our decisions. The first half of 2025 was undoubtedly testing. Volatility picked up after a very strong second half of 2024, and naturally, we asked ourselves whether any structural changes were warranted. But after careful analysis, we concluded this was more of a healthy correction rather than a fundamental breakdown. So, we held our positions with conviction—and that discipline is paying off as markets retrace towards their earlier highs. The key learning has been to stay anchored in process and avoid reacting to noise. In hindsight, not over-engineering the portfolio during turbulent phases has added more value than chasing tactical moves. As we look ahead, we remain focused on long-term secular trends and deepening client engagement—those continue to be our north stars. Q) One of the reports suggested that India Inc.'s profits have grown nearly 3x faster than GDP since FY20. What structural factors are driving this divergence? A) Yes, that's broadly accurate — corporate earnings have significantly outpaced GDP growth since FY20, and there are several structural factors at play. First, the recovery from the COVID-induced low base in FY20 gave a natural boost to earnings. But more importantly, FY22 and FY23 saw strong topline growth, aided by high commodity prices and robust demand across sectors. Even adjusting for the base effect, revenue momentum has remained healthy. Margins have also expanded meaningfully. Companies focused heavily on cost optimization and supply chain efficiencies during the pandemic, and those gains have continued. Formalisation of the economy post-GST has improved compliance, reducing leakage and boosting operational efficiencies — especially for larger, organized players. In the financial sector, improved asset quality and lower provisioning requirements have driven strong bottom-line growth, along with some one-off write-backs. Corporate India has also become more disciplined with capex, leading to better capital allocation, strong free cash flow generation, and widespread deleveraging. In short, a combination of operating leverage (higher margins on stable revenues), financial leverage (lower interest and provisioning costs), and structural tailwinds like GST, digital adoption, and improved governance standards have all played a role in this divergence. Going forward, if this discipline continues and demand remains resilient, India Inc. could sustain a higher earnings growth trajectory than nominal GDP for some time. Q) With the China+1 theme gaining traction, which Indian sectors are best placed to attract global capital and scale? A) The China+1 strategy is no longer just a narrative — it's translating into real capital flows, and India is emerging as a key beneficiary. Several structural advantages work in our favour: a large, low-cost labour pool, a strong STEM talent base, and a proactive government that's aligned on improving ease of doing business and building critical infrastructure. Sectors well-positioned to benefit include: ● Pharmaceuticals and Specialty Chemicals: India has long been a trusted supplier of generics and intermediates. What's changed is the global desire to derisk China exposure. For instance, the U.S. and EU have been actively looking to source key APIs (Active Pharmaceutical Ingredients) from India. Similarly, specialty chemicals used in agrochemicals and electronics are seeing capex announcements from global firms, especially in Gujarat and Maharashtra. ● Electronics Manufacturing: Driven by the Production Linked Incentive (PLI) scheme, India has seen companies like Foxconn, Pegatron, and Tata Electronics commit billions to building mobile phone and component facilities. A striking example is how Apple now assembles iPhones in India, which a few years ago would have been unthinkable at scale. ● Semiconductors and ATMP (Assembly, Testing, Marking, Packaging): While India is still early in chip fabrication, the backend ecosystem is gaining traction. Micron's investment in Gujarat for an ATMP facility is a landmark development. The fact that a U.S. semiconductor major chose India for its first such investment speaks volumes. ● Auto Components: With EV adoption rising globally, India is becoming a hub for certain key parts, especially for two-wheelers and small cars. Several Japanese and German Tier-1 suppliers are expanding their Indian footprint to serve both local and global OEMs. ● Renewables and Green Manufacturing: India's solar panel, battery, and green hydrogen sectors are receiving a strong policy push. Companies like Reliance and JSW have announced massive investments here, and foreign players are beginning to collaborate as well. What's working is not just the cost advantage — it's the credibility India has gained in key global supply chains. A good anecdote: Apple's India-made iPhones made up nearly 7% of global iPhone production in 2023, up from less than 1% just three years prior. That kind of scale-up tells us the shift is real, not just aspirational. Q) How is fixed income as an asset class looking for long term investment. How much money one should allocate as an hedge to combat volatility? A) Investing is more about behaviour than anything else. Fixed income plays a crucial role in any long-term portfolio—not necessarily for maximizing returns, but for bringing in balance, stability, and predictability. While equities tend to outperform other asset classes over long periods, they come with cycles of volatility that can test investor behaviour. There's a wide spectrum within fixed income as well—ranging from ultra-safe instruments like short-duration government bonds to higher-yielding, credit-risk-bearing assets like corporate bonds or even distressed debt. Investors should allocate based on their time horizon, liquidity needs, and risk appetite. As a thumb rule, any money you expect to need in the next 2–3 years should ideally be parked in lower-risk fixed income instruments. For longer-term allocations, a mix of duration and credit strategies can enhance overall portfolio resilience and reduce drawdowns during equity corrections. Also, in a structurally declining interest rate environment or during periods of high policy uncertainty, fixed income can deliver decent risk-adjusted returns. Ultimately, asset allocation is less about chasing returns and more about managing emotions. And fixed income is a strong enabler of that discipline. Q) Which sectors are likely to remain in spotlight in 2H2025? A) From our perspective, several structural themes continue to play out, and our portfolio positioning reflects that. We remain overweight on consumer discretionary, healthcare, NBFCs and HFCs, as well as the broader travel and tourism space—each benefiting from cyclical tailwinds and steady domestic demand. A key focus area for us is capex-linked plays, especially in power and industrials. What's particularly noteworthy is that private capex is now beginning to outpace public spending for the first time in over a decade. This shift has meaningful implications for capital goods, construction, and certain segments of manufacturing. We're also selectively positioned in IT. While the sector as a whole remains under pressure, we are avoiding broad exposure and instead focusing on companies with resilient margins, robust order books, and strong digital transformation pipelines. Overall, we continue to back businesses aligned with domestic growth engines and those demonstrating pricing power, balance sheet strength, and earnings visibility. Q) Can we say that we are in a "stock picker's market" ahead. If yes, what are the key traits investors should look for in FY26 picks? A) Absolutely—we believe the broad-based rally is behind us, and we are firmly in a stock picker's market now. The easy gains from riding sectoral or index-wide moves are giving way to a more nuanced phase where individual company fundamentals will drive returns. At Quest, stock selection has always been core to our philosophy. We follow what we call the QUEST Way—a disciplined framework that guides our decision-making: ● Q stands for Quality of business and management. We seek companies with strong governance and durable competitive advantages. ● U is for Understanding—if you can't understand a business, you shouldn't own it. Simplicity often outperforms complexity. ● E is about Earnings potential—especially the ability to identify inflection points where earnings growth may accelerate. ● S represents Superior risk-reward—we look for asymmetry, where downside is limited but upside is meaningful. ● T reminds us of Timing—not in the sense of market timing, but the discipline of spending enough time in the market to allow compounding to work. While these traits are timeless, sector context matters too. Given that most businesses are cyclical, we often apply a sectoral filter based on our macro and industry views. Once a sector is identified as attractive, the focus shifts to bottom-up stock picking using the QUEST framework. In FY26, success will hinge less on riding market beta and more on precision—identifying the right businesses at the right stage of their journey. Q) Gold has also seen a tremendous run in 2025 – how do you see the yellow metal shining in 2H2025? Time to book profits or add on dips? A) Gold has been in a strong uptrend over the past few years, and 2025 has been no exception—with year-to-date returns of around 38%. This rally has been underpinned by a confluence of structural drivers: persistent geopolitical tensions, gold's role as an inflation hedge, rising concerns around U.S. fiscal discipline, and a global shift towards de-dollarization. A notable trend has been the surge in central bank demand—while average annual purchases a decade ago hovered around 400–500 tonnes, they've consistently crossed 1,000 tonnes in each of the past three years. Given this backdrop, some tactical profit booking may be justified after the sharp run-up. However, from a strategic allocation standpoint, gold remains a valuable diversifier in portfolios. The long-term case remains intact, especially as global macro uncertainties continue to linger. Adding on dips could be a prudent approach rather than exiting altogether. Q) How should one play the small & midcap theme? Has the profitability improved compared to large caps – what does the data suggest? A) In FY25, midcaps delivered robust earnings growth of around 15%, clearly outpacing large caps, which saw more muted growth of 5–6%. On the other hand, small caps underperformed meaningfully, with earnings declining by over 15%, reflecting the inherent volatility in that segment. Looking ahead to FY26, large cap earnings are expected to improve gradually, aided by base effects and cyclical recovery in a few key sectors. Midcaps, while still enjoying stronger earnings momentum, are now trading at a valuation premium to both large and small caps — suggesting that returns may be more in line with earnings growth rather than driven by further re-rating. Small caps, despite their recent earnings dip, are projected to grow earnings by 15%+ in FY26, but the dispersion is going to be high. That calls for a more selective, bottom-up approach, focusing on balance sheet strength, management quality, and scalability. The midcap rally has been largely earnings-led, not just liquidity-driven — and that's a good sign. But with valuations elevated, investors need to be disciplined. In small caps, it's less about the index and more about identifying the next multibaggers over the mid-term horizon — which requires patience, research depth, and position sizing. Q) Any sector which is running out of steam and investors should carefully pare their positions? A) That's a tough one to reply. Rather than taking a purely sector-specific view, we prefer to look at individual stocks within each sector. In our view, the more relevant question for investors is: Has too much of the future earnings potential already been priced in? If valuations have run significantly ahead of fundamentals it may be prudent to pare positions. This is especially true when the current stock price implies a level of growth and profitability that may be hard to sustain given macro or competitive realities. Ultimately, we believe stock selection should be driven by bottom-up conviction. Even in sectors facing near-term headwinds, there can be standout businesses with durable moats and pricing power. But where expectations have outrun earnings visibility, it's wise to be cautious.
Economic Times
5 days ago
- Business
- Economic Times
The Golden Thumbrule on identifying the next big sector to invest
In a market where sentiment swings faster than fundamentals, spotting a sector turnaround before it becomes a consensus trade is a rare edge. In Episode 1 of The Golden Thumbrule, Kshitij Anand sits down with Aniruddha Sarkar, CIO & Portfolio Manager at Quest Investment Advisors, who's built a reputation for identifying sectoral inflection points early. From the meteoric rise of PSUs, defence, and power stocks to his playbook for distinguishing a short-term buzz from a secular boom, Sarkar shares his golden thumb rule for wealth creation and when to you'll learn in this episode:The timeless rule of wealth creationHow to spot the next big sector before everyone elseHis checklist: capital flow, consumer behavior, innovation, and policySigns a trend is short-term vs. secularFrameworks for knowing when to exitWhy the best opportunities lie where no one is looking Show more 23:29 17:26 09:01 32:32 17:30 02:04 21:28 25:50 08:14 20:53 10:56 09:24 21:36 48:10 20:39 20:00 15:46 11:54 08:28 09:57 15:30 09:41 02:48 07:36 07:57 04:40 13:50 05:17 04:48 09:21 05:20 02:15 02:35 03:25 07:26 12:35 19:12 08:31 08:10 16:39
Time of India
5 days ago
- Business
- Time of India
The Golden Thumbrule on identifying the next big sector to invest
In a market where sentiment swings faster than fundamentals, spotting a sector turnaround before it becomes a consensus trade is a rare edge. In Episode 1 of The Golden Thumbrule, Kshitij Anand sits down with Aniruddha Sarkar, CIO & Portfolio Manager at Quest Investment Advisors, who's built a reputation for identifying sectoral inflection points early. From the meteoric rise of PSUs, defence, and power stocks to his playbook for distinguishing a short-term buzz from a secular boom, Sarkar shares his golden thumb rule for wealth creation and when to you'll learn in this episode:The timeless rule of wealth creationHow to spot the next big sector before everyone elseHis checklist: capital flow, consumer behavior, innovation, and policySigns a trend is short-term vs. secularFrameworks for knowing when to exitWhy the best opportunities lie where no one is looking Show more Show less
Economic Times
10-07-2025
- Business
- Economic Times
The Golden Thumbrule: From Hated to Hot - Aniruddha Sarkar on spotting sector turnarounds before the crowd
In a market where sentiment can swing faster than fundamentals, identifying a sector turnaround before it becomes a consensus trade is nothing short of a superpower. Aniruddha Sarkar, CIO and Portfolio Manager at Quest Investment Advisors, has built a reputation for doing just that—spotting inflection points in sectors long before they capture the market's imagination. In this candid conversation with Kshitij Anand for 'The Golden Thumbrule' series, Sarkar shares the golden thumb rule that has guided his investment decisions, how he identified the meteoric rise of PSUs, defence, and power stocks, and why being early (and often contrarian) can be the biggest edge in wealth creation. Edited Excerpts – ADVERTISEMENT Kshitij Anand: Well, you've hit the nail on the head that the time of making easy money is behind us. Let's quickly hit the ground running. So, according to you, what is the single most time-tested rule for wealth creation and preservation in Indian equities? Aniruddha Sarkar: See, one thing I've observed over the last 18–20 years in the Indian markets—and to some extent this holds true for most emerging markets—is that the beauty of emerging markets like India is that almost every year, you find new companies, new sectors getting listed, raising capital. There's always some policy change happening—be it local or global. I would say international realignments of policy are occurring, and thanks to Mr. Trump, we've seen those happening more frequently these days. So, I would say the single most important rule for wealth creation—especially in the Indian context—is to be early in identifying a sectoral theme. Be there before others, and that's where we've seen the biggest wealth creation happen. There are ample examples. If you look at the last 10, 15, 20, even 30 years, any big wealth creation—from the IT boom of the late '90s to any other major rally—has always been about catching a sectoral theme early on. Be invested while the theme is playing out. Don't exit early. That's very important. Don't exit early, and that's where both wealth creation and preservation happen. Kshitij Anand: In fact, you often talk about catching sectoral changes early. Honestly, that sounds like a superpower to some. I'm sure it's easier for you, but can you walk us through your personal playbook for identifying these shifts?Aniruddha Sarkar: As you mentioned, I often get asked how to identify a sectoral trend. And I always say, there's no magic formula, to be honest. Also, there's no one—at least to my knowledge—who has been able to identify every trend 100% of the time. You actually don't need to be right all the time. Even if you get it right 75% to 80% of the time, your job of beating the market is as for what I look for to identify sectoral trends—first and foremost is capital allocation. Where in the economy is capital moving? That's a strong indicator of where the next big growth area is likely to come from. And businessmen are no fools—they know where to invest for returns. So, I always say: follow the capital flow in the economy. ADVERTISEMENT Second, a good sign is any big change in consumer behavior. That also gives you a strong signal. For example, if you talk about EVs, is there a shift in consumer preference from petrol-diesel vehicles to EVs?Now, linking back to the earlier point on capital allocation—are companies like Mahindra and Tata investing more and more into EV manufacturing? That's a cue. And then, does consumer preference reflect that shift? That's the second big factor. ADVERTISEMENT The third is technological change or innovation. Is there a fundamental change in the traditional way of doing things? And again, is capital flowing toward this innovation? Take renewable energy, for instance. Over the past few years, we've seen significant capital moving toward it. The cost of solar power production has dropped sharply, making it commercially viable. This is a classic case where technological innovation, supported by favorable economics, signals a long-term the fourth factor is government policy. Is there a policy push that supports the sector you've identified? Again, using renewable energy as an example—the government has been highly supportive. They've offered incentives, promoted rooftop solar panel installations, and enabled benefits like feeding excess power back into the grid. All these are signs that government policy is aligned with innovation and capital flow. ADVERTISEMENT So, in summary: watch where the capital is moving, understand consumer behavior, observe technological shifts, and track government policy. All in all, you just need to keep your eyes and ears open to what's happening around you. Kshitij Anand: Well, for Gen Z, it's not just about what new movie is releasing on Friday, but also about tapping into what's happening in the government's space, which will ultimately dictate the sectors that will create wealth for you in the coming years. Now, let me quickly move on to a slightly nerdy question, if I may say so. How do you separate a short-term buzz—more like a cyclical tailwind—from a long-term boom, which is more of a secular trend? Because, let's face it, both can look shiny at first. For example, EVs seem more popular, more trendy—it feels cool to be driving around with a green number plate. What are your thoughts on that? ADVERTISEMENT Aniruddha Sarkar: No, absolutely. In fact, you've rightly mentioned it. In the initial days—or I would say in the first few months—it's very difficult to differentiate between what's a cyclical trend and what's a structural change. Initially, everything looks like a big shift. But only after a couple of quarters do you realise that it was more of a cyclical change than a structural I would say there are four to five key parameters that help you figure out whether something is long-lasting or just short-term. The first factor is time horizon and consistency. Typically, cyclical trends pick up during economic booms and fade during recessions. A good example would be infrastructure, cement, or metal consumption. These are typically cyclical. At the peak of an economic cycle, demand for cement and metals goes through the roof. And honestly, it's very hard to time the metal or cement cycles—but that's just how cyclical patterns the other hand, a secular trend continues across multiple business cycles. Something that picks up during the good times continues to perform even during downturns, and then builds further during the next upcycle. That consistency is the key second factor is the source of growth. Typically, cyclical upmoves begin with government stimulus—like what we often see in China. Whenever China announces an economic stimulus, metal stocks and the real estate market there suddenly boom. And as soon as the stimulus fades, everything comes back down. Kshitij Anand: Something similar to what we saw with the PLI schemes, perhaps? Aniruddha Sarkar: Absolutely. The PLI schemes were introduced across 14 industries, but structural upmoves happened only in a few. All 14 didn't show significant long-term impact. So yes, some benefited structurally, while others saw only a cyclical boost. As I mentioned, if the growth is driven by external factors like policy stimulus, it's usually cyclical. But if it stems from deeper changes like innovation or consumer behaviour, it's more likely to be third difference I observe between cyclical and secular trends is in valuation and fundamentals. In a cyclical upmove, stocks go from being cheap to expensive in a matter of six months. But in a secular trend, this journey takes much longer—and once valuations peak, they tend to sustain at higher levels for longer rather than correcting quickly. That's a clear behavioural last big difference is in what companies do with their capital. In a cyclical upcycle, companies often don't know what to do with excess capital. So, they return it to shareholders through buybacks, dividends, or bonuses. In contrast, in a secular trend, companies invest that free cash flow into growth. That's a powerful signal.A good example is the IT sector. During the earlier secular boom, companies were investing in themselves—setting up campuses, expanding globally. Today, the same companies are paying out large dividends, doing buybacks, and bonuses—which suggests they aren't finding enough avenues to deploy capital productively. That's another strong indicator for distinguishing between a cyclical and a secular uptrend. Kshitij Anand: My next question is quite literal—zero to hero, you could say. We've seen sectors like PSU, defence, power, and real estate go from being boring to becoming market darlings within a matter of months. What are the early signs that a sector turnaround is for real, and not just hype? Aniruddha Sarkar: You've nailed the sector names. In fact, I remember just 24 to 36 months ago, when I had launched one of my AIFs, these exact sectors—PSU, defence, power, energy, real estate—had a significant chunk of my portfolio allocation. I had a tough time explaining to investors why these sectors deserved now, the same investors are the ones telling me why these sectors are worth looking at. That shift in perception itself says a lot… Kshitij Anand: The story has turned around. Aniruddha Sarkar: Absolutely. So, this kind of answers your question about the types of sectors or signals that tell you which sectors to look at and bet on. I would say PSUs, in general—within PSUs, you have multiple categories: PSU banks, defence stocks, energy I put it differently, what gave me an indicator—and this goes back to those days—was that, in banks, all the operating metrics of those coming out of the NPA cycle were improving. We had SBI and other PSU banks quoting at 0.4–0.5 times price-to-book. Their ROEs and ROAs were either in low single digits or even in the negative if you're coming out of an NPA cycle and you've already done your provisions, then the question is—what could be worse? That was the bottom. From there on, the numbers only improved. So, when it comes to PSU banks, improvement in operating metrics was the first PSUs related to defence, the big boost came post the Ukraine war. When the war started in February–March 2022, the world woke up to the need for strong defence. Thankfully, post-COVID, India was already moving towards Atmanirbhar Bharat and Make in India. The government realised that we couldn't depend on others for defence needs. That's when defence became a major focus—modernising and indigenising our defence equipment. That marked a key shift for PSU defence third big sector within PSUs is power and energy. If India is to grow at a 6%+ GDP rate for the next 10 years, we must have adequate power supply. And power, unfortunately, cannot be imported—not at scale, at least. Yes, to some extent, we can import from neighbouring countries, but even they depend on us. So, importing power isn't really an option. Hence, the government push for capex in the power sector these were the big triggers for identifying PSUs—particularly PSU banks, defence, power, and energy—as sectors that were coming out of the woods. It was time to bet on them. Kshitij Anand: If I can just ask you to dig into your memory vault—could you share one investment where you spotted a sector early and it played out beautifully for you? What gave you that conviction? Any bullet points you'd like to highlight? Aniruddha Sarkar: I'll give an example from a completely different industry—since we've been talking about PSUs, power, and defence. This example will help investors understand that sectoral upcycles can happen in any early trend we identified, which worked well for our investors, was the capital markets theme. If you're betting on more and more household savings moving into equities, then the question becomes: who are the biggest beneficiaries of that shift?We broke it down: the key participants in the capital market are—ExchangesBrokeragesWealth management firmsAsset management companies (AMCs)Intermediaries like KFintech, CAMS, and CDSLThese are the only five categories that provide exposure to the Indian equity market. So, are they all going to benefit? When we dug deeper, we found that all five subsectors were poised for exponential took early exposure to exchanges, and we've all seen how listed exchanges have performed over the last couple of years. We also invested in asset management companies, based on the premise that mutual fund folios and assets would grow both organically and inorganically. AMCs benefit from operating leverage—managing ₹50,000 crore today versus ₹5 lakh crore tomorrow doesn't require a 10x increase in staff. That's where margins expand. Third, we invested in wealth management firms. With more affluent Indians, the demand for professional wealth management is only increasing. And finally, we took positions in intermediaries like CAMS, KFintech, and CDSL—natural beneficiaries of rising folios in mutual funds, AIFs, and PMS products. This is a classic example of identifying a big sectoral shift, recognising its key beneficiaries, and then zooming in further to pick the strongest players within each category. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
