360 ONE’s Mayur Patel spots alternatives in 4 sectors on your FY27 portfolio
Edited excerpts from a chat on market outlook and investing technique:
How do you assess the present market structure, and the place do you see probably the most compelling risk-reward alternatives over the subsequent 12–18 months?
The macro structure has improved materially. The Finances is behind us, the US-India commerce deal is in place, and liquidity circumstances have eased meaningfully. The RBI has delivered sizable charge cuts, system liquidity has shifted into surplus, and credit score progress, after moderating to 9%-10% has rebounded to 13-14%, with scope for additional acceleration. Earnings tax reduction, GST rationalisation and the upcoming pay fee cycle ought to help disposable earnings and concrete consumption.Externally, the capital account pressures that drove sustained rupee weak point are moderating. Commerce agreements with key companions, together with the US, UK, EU and UAE, have enhanced exterior commerce visibility. US tariffs on India are aggressive relative to Asian friends, restoring export viability. The current US Supreme Courtroom ruling difficult the manager authority of Trump’s administration behind sweeping tariff measures creates short-term coverage uncertainty. Nonetheless, for India, outcomes seem beneficial both manner. If the present ~18% tariff framework holds, India stays competitively positioned. If broader tariffs are rolled again, lowered international commerce friction would profit India and different export economies alike. A stabilising rupee, mixed with bettering commerce phrases, can revive international portfolio flows, probably making a virtuous cycle.
This backdrop helps a beneficial medium to long-term risk-reward in home segments corresponding to discretionary consumption, financials, manufacturing, and choose capital items. Export-oriented manufacturing presents an incremental alternative.
Key dangers stay crude worth volatility, which may reintroduce macro pressures, and AI-led disruption inside legacy IT providers.
To what extent do you see AI-led disruption altering the aggressive panorama for IT providers?
AI is basically altering the financial construction of IT providers. Indian corporations face real disruption threat within the absence of swift adaptation. The trade has navigated prior expertise shifts, corresponding to automation, cloud, and digital transformation, by incorporating develop into its supply mannequin. This time it’s completely different as a result of AI, significantly agentic workflows, targets the core effort-based income engine, together with coding, testing, upkeep and help.
AI-driven coding assistants and autonomous brokers now execute substantial parts of software program improvement and more and more handle legacy methods with higher precision. As enterprises combine these instruments inside supply frameworks, venture cycles shorten, and pricing fashions shift towards outcomes quite than effort. Throughout this transition, conventional income streams in utility improvement, software program engineering and elements of BPO may face significant strain.
Valuations of a number of incumbents already suggest muted long-term progress, reflecting scepticism in regards to the sturdiness of labour arbitrage-led supply fashions. Whereas this will seem conservative, valuation consolation alone is unlikely to drive a rerating. Incumbents anchored to legacy supply fashions are extra uncovered, whereas challengers with stronger digital and AI native capabilities are higher positioned to achieve share. Corporations should exhibit that AI expands their addressable alternative quite than merely compressing billable effort.
The strategic threat is inertia. Companies that proceed to rely totally on scale, labour arbitrage and incremental automation might face structural margin and progress erosion. The winners will materially improve R&D, construct proprietary AI platforms, shift towards outcome-based pricing and embed AI throughout each layer of supply. Reinvention is feasible, however the window to execute is narrowing.
What’s your outlook on the vitality transition theme, significantly in renewables and photo voltaic, and the place do you see scalable, investible alternatives rising?
India’s 500 GW renewable goal by 2030, as soon as seen as bold, now appears to be like comfortably achievable if present momentum sustains. Photo voltaic additions have accelerated sharply, with ~30 GW added in 9MFY26, up from ~24 GW in FY25, bringing cumulative photo voltaic capability to ~136 GW. At this tempo, reaching ~280 GW of photo voltaic by 2030 seems nicely inside attain.
Demand may shock on the upside. Information centre capability is predicted to scale up multifold over the subsequent 5 years, and inexperienced hydrogen may develop into an incremental structural driver of renewable energy demand.
Photo voltaic stays central to the transition, rising considerably during the last 5 years, supported by robust company and industrial demand, photo voltaic pumps underneath PM KUSUM, and rooftop adoption underneath PM Surya Ghar. Penetration stays low throughout these segments. Round 11 lakh photo voltaic pumps have been put in to this point, however almost 80 lakh diesel pumps stay accessible for conversion. Continued budgetary allocation reinforces coverage continuity.
Essentially the most scalable investible alternative lies in built-in photo voltaic manufacturing. A transparent coverage roadmap is driving phased indigenisation from modules to cells and, finally, to wafers. Corporations with confirmed cell efficiencies which might be backward integrating into wafers and ingots, whereas increasing into batteries, inverters and allied electricals, can construct sturdy aggressive benefits. Built-in gamers with expertise depth and value management may take pleasure in a multi-year upcycle that extends past easy capacity-addition themes.
Which structural progress areas in India are nonetheless underappreciated by the market regardless of robust long-term fundamentals?
A number of sectors with bettering structural drivers are nonetheless not totally valued for his or her medium-long time period earnings trajectory: financials, telecom, business autos and built-in photo voltaic manufacturing.
Financials: Financial institution earnings have been subdued as a result of slower credit score progress, which moderated to ~9% earlier than recovering to ~13–14%, together with margin compression through the declining rate of interest cycle. With liquidity bettering and the speed cycle nearing its finish, margin pressures ought to ease, and credit score progress is prone to re-accelerate. Non-public banks proceed to commerce at cheap multiples relative to their ROE potential, whereas PSU banks, after sharp outperformance, supply a much less beneficial risk-reward.
Telecom: The sector has shifted from intense competitors to a extra steady three-player construction after government-backed reduction enabled the third operator to stabilise. This materially modifications trade economics. A rational three-player market creates room for calibrated tariff hikes, particularly as costs stay considerably beneath international ranges regardless of India’s world-leading information consumption of ~28 GB per consumer per 30 days. Latest tariff will increase have already improved margins and money flows. As well as, 5G rollout requires community densification, supporting incremental tower demand and providing a structural progress lever for infrastructure gamers. A number of catalysts are converging positioning the sector for a structural re-rating as sturdy profitability rise performs out
Industrial Autos: Coverage help, together with the GST lower from 28% to 18%, has unlocked demand. Almost half of the MHCV fleet contains older autos, making a sizeable substitute alternative. About 53% of India’s 4.7 million MHCV fleet contains older BS-III/IV autos providing a big substitute pool. OEM margins and ROEs are above prior-cycle peaks, but valuations don’t totally replicate the potential for a multi-year upcycle.
Built-in Photo voltaic Manufacturing: There are attention-grabbing mispriced alternatives within the Photo voltaic worth chain. As localisation deepens throughout modules, cells and wafers, built-in gamers with technological depth and backward integration are positioned for sustained worth creation, which isn’t but totally captured in present valuations.
Are there segments the place you imagine the market narrative is stronger than underlying fundamentals?
Sure pockets of the market look like buying and selling extra on narrative energy than on elementary earnings progress potential. In a couple of segments, expectations embedded in valuations appear forward of the underlying progress trajectory.
Sectors corresponding to FMCG and Defence stand out as areas the place valuation seems wealthy relative to fundamentals, whereas Healthcare and IT providers proceed to grapple with progress uncertainties that might not be totally mirrored in valuations.
Demand developments within the FMCG area stay smooth, with combination volumes increasing marginally. The anticipated rural rebound has been patchy, whereas city consumption is more and more value-conscious throughout a number of on a regular basis classes. Given the lengthy runway of distribution build-out and premiumisation already achieved, most staple segments corresponding to residence care and private care are deeply penetrated, leaving restricted headroom for significant volume-led growth. Regardless of this tempered outlook, massive FMCG names nonetheless commerce at elevated earnings multiples, successfully discounting a reacceleration in revenue progress that lacks clear near-term catalysts. General, the sector offers earnings resilience however restricted upside shock, and relative valuations seem demanding when benchmarked in opposition to sectors exhibiting stronger earnings momentum at related or decrease multiples.
Defence shares have witnessed a pointy re-rating pushed by indigenisation, increased capital outlay, and bettering export momentum. The structural alternative stays credible, with multi-year order visibility throughout key platforms. Nonetheless, valuations in a number of names seem to think about exponential order inflows, seamless execution, and sustained margin growth concurrently. Whereas Tier-II gamers are seeing increasing addressable alternatives, their working capital cycles stay considerably stretched, making the mannequin structurally capital intensive and infrequently necessitating periodic fairness raises, which may dilute returns and constrain worth creation. Though the long-term runway is undamaged, elements of the sector seem priced for hyper-growth quite than calibrated execution, rendering the present risk-reward much less compelling at prevailing multiples.
What differentiates a targeted fund technique when it comes to alpha era in contrast with a diversified method?
A targeted fund technique differentiates itself by way of conviction and place sizing quite than large diversification. Capped at a most of 30 shares, alpha could be generated by way of deep bottom-up analysis and figuring out companies providing compelling risk-adjusted return potential whether or not pushed by worth dislocation, structural progress, or a mix of each impartial of benchmark weights. The method avoids benchmark hugging, stays sector-agnostic, and offers flexibility to allocate significant capital to high-conviction concepts, permitting winners to meaningfully affect portfolio outcomes.
Danger in such a concentrated portfolio could be managed by allocating capital throughout companies with differentiated earnings drivers, though good non-correlation is never achievable in follow. The target is to keep away from clustering publicity to a single macro variable or cycle. Robust place sizing self-discipline, steady thesis assessment, and clear exit frameworks stay important. Mixing structural compounders, selective cyclicals, and defensives with various cash-flow profiles will help average drawdowns whereas preserving the power to generate outsized alpha.
How do you see the risk-reward evolving within the small and midcap segments?
After a robust outperformance section by way of CY23–24, small and midcaps entered CY25 with excessive expectations and crowded positioning. The correction since then has been sharper within the broader market: whereas the Nifty stays barely beneath its September 2024 peak, the BSE Smallcap index is ~15% beneath its peak and the Midcap index ~6% decrease. The earnings downgrade cycle that pressured sentiment over the previous few quarters now seems to be easing, with most estimate cuts possible behind us throughout a number of segments.
Valuations now present a transparent divergence. The Nifty trades close to 3.5x price-to-book versus a long-term median of ~3.2x, implying solely a modest premium. The midcap index nonetheless trades at a significant premium to its historic averages, leaving room for upside. In distinction, the smallcap index has corrected again towards historic median valuations after sharp worth erosion in a number of pockets.
With earnings expectations reset, risk-reward seems extra balanced in massive caps and enticing in small caps, whereas midcaps stay comparatively costly on a risk-adjusted foundation. That mentioned, it is a broad market-cap view; in the end, bottom-up inventory choice pushed by analysis determines portfolio risk-return outcomes.