On Episode 994 of The Core Report, financial journalist Govindraj Ethiraj talks to K. Ravichandran is the Executive Vice President and Chief Rating Officer at ICRA Limited as well as Vaiibhavv Chugh, CEO at Abakkus Mutual Fund.

SHOW NOTES

(00:00) Stories of the Day

(01:22) Oil Flows Through The Strait Of Hormuz Are Only 11% Shy Of The Pre-War Peak

(05:12) The Sensex Has Fallen 20% This Year In Dollar Terms, Steepest In 15 Years

(06:36) India Sees Lowest Rainfall In Decade

(06:58) How 74% Of Indian Entrepreneurs Want To Live Elsewhere

(07:33) India Should Convert Macroeconomic Resilience Into Sustained Economic Momentum, Says S&P Global Ratings

(09:28) Indian Companies Have Strong Balance Sheets Going Into The Second Half

(21:09) Why Stock Selection Is Going Beyond The Classic Large Cap And Small Cap Definition

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Thursday, the 1st of October, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes (and there are quite a few of them)...

How oil flows through the state of Hormuz are just 11% short of the pre-war peak.

The Sensex has fallen 20% this year in dollar terms, the steepest in 15 years.

India sees the lowest rainfall in a decade.

The country should convert macroeconomic resilience into sustained economic momentum, says S&P Global Ratings.

Indian companies have strong balance sheets going into the second half, say a host of rating companies.

Why stock selection is going beyond the classic large cap and small cap definition.

And how 74% of Indian entrepreneurs want to build here but live elsewhere.

Markets, Oil Flow, Rainfall and Gold

We touched on this yesterday, but there is now more data coming in through and via the state of Hormuz. Oil exports from West Asia are only at about 11% below pre-war levels. The 10-day average for total oil exports is now about 20.5 million barrels per day versus about 20.9 million barrels per day in early 2025, according to a note from J.P. Morgan, adding that crude recovery is much stronger than refined product recovery, as we've seen with diesel prices.

Crude flows have rebounded to about 17.5 million barrels per day on 98% of pre-war levels, while refined product exports remain around 3 million barrels per day or only at 58% of pre-war levels, says J.P. Morgan, adding that this reflects the continued disruption to refined product supplies. India is already seeing much higher Middle East oil imports. In September, India's imports from the Middle East and unknown origins rose to 2.8 million barrels per day, up from 1.2 in August and above the 2025 average of 2.3. One problem is that while Hormuz flows are close to normal, container shipping still is disrupted.

So to sum up, crude exports are almost back to normal, refined products and mainstream container shipping are still lagging, while the cost of navigating the security risk remains exceptionally high in that J.P. Morgan report. Now, the oil prices, of course, do not reflect all of this, which is an interesting catch-22 because oil prices were lower even a few weeks ago when the flows of ships and oil through the state of Hormuz were much more restricted. And thus, prices seem to be determined more by risk perception than actual flows at this point, it appears.

And some not so good news as we look back at the first half of the year, which ended yesterday. And also, by the way, gear up for Q2 results, which will start flowing soon. The Sensex has fallen more than 20% in 2026 so far in dollar terms, which is the sharpest in 15 years as the rupee's weakening has amplified losses for foreign portfolio investors.

The Nifty has declined about 19% in dollar terms, and both indices are the second biggest laggards amongst global markets after Indonesia, according to a report in the about 13% this year. Foreign portfolio investors, of course, measure their returns in US dollars, and a weaker rupee eats into those returns when investments are converted back into dollars for repatriation. The Indian markets, as we all know, have been drifting around since September 2024, a full two years now, thanks to a host of factors, both external and internal.

The ET report says that the last time both indices recorded a sharper decline was in 2011, when they fell nearly 36% each in dollar terms. The deluge of IPOs, of course, which contributes to some of that weakening conditions in the market continues. Of the 11 big IPOs that raised about 9,500 crores each through public issues since 2021, seven are trading below their respective issue prices, including the most recent NSC, or National Stock Exchange, that raised about 22,000 crores a week ago, according to a Business Standard report.

Now, these seven companies, the report says, raised about 105,000 crore rupees from the markets, and that is now valued about 15% less at about 89,000 crore rupees. Many of the other names are all well known, and mostly for their ad spends. To return to oil prices, despite flows picking up and inching towards pre-war levels, oil prices were on track for a 14% monthly gain as talks between Iran and the United States continued and did not seem to reach at any specific closure.

Brent crude prices on Wednesday were up and hovering about $103.40 a barrel. With all this in the backdrop, Indian indices broadly held on, though slipped back into the negative after spending some part of the day in the positive. The indices extended losses, therefore, into the third session this week.

And remember that this is a holiday shortened week, so we will not have an edition on Friday morning. The Sensex fell 48 points to close at 72,480, and the Nifty 50 was down 95 points to close at 22,620. In the broader markets, the Nifty mid-cap, under, and the Nifty small-cap were down slightly and up as well.

U.S. Treasury yields were lower on Wednesday, and they recovered down after seeing heavy selling pressure in the previous session, thanks to concerns about inflation in the U.S., government debt, and the potential for a tighter monetary policy in the form of higher interest rates, which are being projected now. The 30-year Treasury bond was last 4 basis points lower to 5.553 percent after rising to its highest level since 2002 on Wednesday. The 10-year Treasury was down 3 basis points to 5.221 percent, and the 2-year Treasury no-deal was 1 basis point lower at 4.876, the CNBC said.

The rupee is now amongst the worst performers in Asia this quarter, and over the last 30 days, thanks to all the worries that we've been showcasing, the currency has fallen about 0.7 percent in September, about 1.2 percent in the July-September quarter, and on Wednesday closed at Rs. 95.83, up slightly from Rs. 95.98 in the previous session.

Gold prices are now slightly up, though they too have fallen for the month, thanks mostly to the possibility of rising interest rates. Spot gold was at about $4,188 per ounce. And more gloomy rainfall data.

India has recorded its lowest monsoon rainfall in more than a decade during the June-September season, thanks to the El Nino weather pattern, which hit precipitation, Reuters quoted weather officials saying. India has received 12.6 percent below average rainfall during the season, according to officials at the Indian Meteorological Department. And finally, Indian entrepreneurs want to build in India but live elsewhere.

Nearly three-quarters of Indian entrepreneurs plan to relocate or add another residency, highlighting the increasingly global outlook of the country's wealthy business owners, the HSBC Global Entrepreneurial Wealth Report for 2026 has said. The survey reported by Business Standard found that 74 percent of Indian entrepreneurs plan to relocate or add an additional residency, broadly in line with a global average of 70 percent. The most popular destination, well you may have guessed it, is Singapore, cited by 14 percent of Indian respondents.

France, the UK and the US followed, with each cited by about 11 percent of respondents.

Macroeconomic Resilience Into Sustained Economic Momentum

Resilience is the continuing theme when it comes to the Indian economy, the opportunity now is to build on it. India has significant opportunity to convert macroeconomic resilience into sustained economic momentum and our research suggests that India can build on this momentum by advancing the next phase of physical infrastructure development, supported by competitive federalism, deeper capital markets and more robust financial intermediation, according to Yann Le Palais, President of S&P Global Ratings, in a report put out on Wednesday.

Dave Enzberger, President of S&P Global Energy, highlighted in the report that the disruption to energy supplies through the state of Hormuz has been a severe test of energy security for high-growth Asia and India, which relies heavily on the state of Hormuz for oil refined products, gas and adjacent supply chains, has faced reductions in crude and LPG of 20 percent and 12 percent, as well as a drop of 16 percent in LNG. Economic resilience and energy security therefore are critical as India responds to this continuing supply shock. This is all about S&P's annual India Research Chapter Report titled India Forward Reimagining Growth, which also finds that the next iteration of India's geopolitical strategy will likely involve compartmentalised cooperation with major powers and holistic engagement with emerging economies.

The report says the digital rupee could become the fourth layer of India's digital public infrastructure, embedding rules directly into money and it also says that India's economic growth is expected to slow down to seven percent in 26-27 and the growth outperformance in general, even for the last year, underscores the strength of India's domestic drivers and its ability to navigate an increasingly uncertain global environment. The report also says India must build integrated storage, diversified supply chains, and energy security for a more resilient future and that the E-20 programme has advanced from a fuel blending mandate into a broader energy security option.

Indian Companies Have Strong Balance Sheets Going Into The Second Half

All the major rating agencies have put out their half-yearly reports looking at the state of balance sheets and the credit profile of Indian companies and this includes ICRA, CRISIL, and CareEdge.

Rating agency ICRA highlighted that credit quality remained strong in the first half of 26-27, that's ending yesterday, despite some moderation in the rating activity. The credit ratio stood at 3.2 times compared to 2.8 times in the first half of 25-26. This was nearly twice its 10-year average of 1.5x, while the annualised upgrade rate has moderated to 14% from 17%.

In 25-26, the annualised downgrade rate has declined to a multi-year low of 4%, says ICRA. All of this underscores the continuing strength in underlying credit quality despite the challenges externally. And thus, Indian companies are entering the second half from a position of strength supported by healthy balance sheets and substantial liquidity buffers, says ICRA, though looking ahead elevated crude oil prices, deficient monsoon rainfall, and rising inflation are expected to moderate consumption growth, particularly across rural linked and discretionary sectors.

I spoke with K. Ravichandran, Executive Vice President and Chief Rating Officer of ICRA and I began by asking him how he was seeing beyond the few sectors that were responsible for a lot of the balance sheet strength in the first half.

INTERVIEW TRANSCRIPT

K Ravichandran: If you look at the overall portfolio as 100, generally the rating actions happen, you know, rating action in terms of rating upgrade or downgrade happens within a limited universe, let's say 15 to 20 percent. Balance 80 to 85 percent of the cases, ratings do get re-tanked at the current level. So when we talk about credit ratio, it pertains to the changes within the 15-20 percent bracket.

So APRA, the first half of the current financial year, we have had 3.2 times credit ratio. It means for every downgrade, we had the 3.2 upgrades. So compared to the last financial year, it's higher, last financial year.

For the same period, it was only about 2.8 times. So we have had good upgrades despite all the challenges Indian economy faced. It was more on account of entity-specific reasons rather than overall district-level tailwinds.

We rate a lot of companies in the infrastructure space, especially in the renewable energy, roads, power transmission and so on and so forth. Most of these entities, whenever, you know, they complete their projects, you know, their profile increases, I mean, their credit profile improves because, you know, from the project stage, they would have become operational stage. Cash flows would be coming along.

So from that point of view, risk level goes down. So in many such instances, successful completion of the projects leads to rating upgrades and also many of these entities, they do refinancing, you know, with the fall in the interest rates, you know, through the banking system or through the bond market. You know, the companies do refinance.

Whenever they do refinancing, you know, the maturity gets elongated. So that gives relief on the debt service in front. And because of that, you know, overall debt service coverage ratio also improves.

That is one type of upgrades. Secondly, you know, in some sectors, like for example, real estate, we have seen upgrades mostly in the commercial real estate rather than in the residential real estate market. Commercial real estate market has been quite buoyant because of good demand from the GCCs and BFSI sector and other business process.

Frenzy levels are fairly good in some of the major centres like, you know, NCR region, Bangalore, Hyderabad, even Mumbai region also has seen good amount of occupancies. So because of such, you know, good occupancies and rentals, overall credit metrics of large commercial real estate developers also has improved. Otherwise, I mean, the consumption orientated sectors like auto, automobiles, auto sector has been doing very well, especially after the GST rationalisation.

While OEMs are doing well, benefits have accrued to the auto component suppliers as well. So that is one space where we saw upgrades. Otherwise in the financial sector, by now, you know, the bigger companies have been upgraded and only the, you know, the smaller entities who might have raised capital or, you know, might have cleaned up their books and asset quality would have become normal, so on and so forth.

In such cases, we have had upgrades in the tenancy sector as well. And last, on the capital board side, larger entities are having good orders from defence, railways, and power transmission, and also renewable energy related, you know, orders and so on and so forth. Broadly, these are the pockets where, you know, we have seen good buoyancy.

Otherwise, the rest of the sectors, 80% of the sectors, where, you know, we see a steady kind of credit profile, also helped by the fact that the deleveraging has happened for the majority of the companies. And despite small pressures on the margin side, on the demand side, companies have, you know, buffered to withstand the commodity price increase or interest rate increase and working capital elongation and so on and so forth. So while majority of the corporates are stable level, few corporates have seen upgrades and few have seen downgrades.

Govindraj Ethiraj: So if I were to ask you overall health of India Inc, how would you characterise all the, what you've just told me? I know it's a 20-80 thing, but I mean, if I were to ask you for a sort of broader pulse.

K Ravichandran: I would think, you know, the credit quality of India Inc continues to be in good health, despite all the challenges. Largely upon the fact that capital has been available in plenty, both on the equity side and debt side, you know, companies have been able to do deleveraging. Historically, if you see infrastructure was one space where a lot of leverage was seen, but awfully, even the fact that there are many instruments through which they can deleverage, for example, inmates, rates and capital recycling, you know, by selling assets and so on and so forth.

Inventory activity also has been quite buoyant in infrastructure space. So because of all these activities, deleveraging has happened for the infrastructure sector. Otherwise, you know, in the case of manufacturing sector, you know, traditionally it's a loaded kind of a sector.

In fact, they're having to cash surplus as well. Many of them have been quite selective when it comes to CapEx. So because of the, you know, the uncertainty around the external demand environment, CapEx, if at all they're doing, largely they are funding through internal accruals.

So because of that, manufacturing sector per se hasn't seen much, you know, impact. Otherwise on the financial sector, you know, the NPFCs, microfinance was one segment which was impacted deeply. Even that sector has come back to normalcy, you know, with the discipline shown by the industry with regard to lending to borrowers.

And also the banks also, you know, were quite selective in lending to these MFI entities. So because of the adjustment over the last two years, binary asset quality has come to normal levels. And some of the major entities have become, they have started growing their books also.

So that is how it is panning out on the finance sector.

Govindraj Ethiraj: So broadly, I guess this reflects a certain degree of resilience in India Inc. But if you were to look ahead and look back in a way over the last 18 months, since let's say the tariff war started, would you say that India Inc's resilience is inbuilt and therefore can sustain at these levels? Or in a way, have we exhausted at least a good part of ammunition fighting this battle so far?

And therefore, the forward effect or the forward impact could be different?

K Ravichandran: See, in the case of India, the government also played a very important role addressing the shocks, especially through energy price-related adjustments. You know, OMCs absorbed most of the impact and actual pass-through was limited. And also there was selective credit-related intervention as well.

Some of the affected sectors, you know, got additional credit or, you know, they got guarantee through ECL, credit guarantee schemes, and so on and so forth. So funding was, liquidity and funding were ensured through this kind of government measures. And otherwise, the public impact also has been quite strong, you know, on the infrastructure space, metro rise and roads and other, you know, thermal power generations and so on and so forth.

They're crowded in private sector investments as well. So government played an important role. In addition to the private sector, on their own merit also, you know, they created a lot of buffers over the last 4-5 years, especially during the post-COVID period.

They have bolstered the balance sheet by either raising capital or, you know, preserving a lot of liquidity there and to meet any exigencies. So this has given them some flexibility to withstand any margin pressures or growth related, you know, challenges.

Govindraj Ethiraj: Right. And as you look ahead, your report also has injected a note of caution. And you've also said that we could see demand moderation in many areas or some industries could see impact of demand moderation.

So what is standing out to you or for you?

K Ravichandran: Yeah, in the immediate context, there are two risks which are likely to hit the markets. Number one being, you know, this West Asia, you know, the lingering tensions were there and off later, that has acquired a greater momentum that is visible through the crude price increase. And other, you know, commodity price, especially metals and so on and so forth, you know, that is likely to impact the inflation.

And second one on the monsoon front, you know, we've had a deficit monsoon. Till now, we've had about 12% deficit on all India level. But few states are impacted more, Karnataka and Maharashtra being prime examples.

And overall, southern region is one of the affected regions, apart from the northeastern region. Second off, I believe, would be tough for the rural markets. Industries which are focused in this segment, especially two wheelers, tractors, FMCG, used commercial vehicles, agrochemicals, so on and so forth.

These entities could be facing a subdued demand, even margin prices as well, even working capital also could be elongated. So that is one concern. Because of these two compounding factors, you know, the price rise is quite inevitable.

Already, you know, pulses, prices have gone up substantially. And other food prices pass through could also be happening. And metals in general have been rising and rising only.

So overall, the inflationary impact that could result in interest rate hike, just a matter of time before central bank also raises pulse rates. As per ICRA's expectation, at least two hikes of 25 basis points each, you know, would be there in the next six months. So that could result in some slowdown on the interest rate sensitive sectors like, you know, automobiles or, you know, mortgages and so on and so forth.

So these are the headwinds that we anticipate in the next three to six months. If West Asia, you know, tensions were to abate because of intervention by Trump, that can be a good outcome for India Inc. Because that would address currency related concerns and commodity price related, you know, inflation and so on and so forth.

Govindraj Ethiraj: All right, Ravi, thank you so much for joining me.

K Ravichandran: It's my honour. Thank you.

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Continuing with ratings reports, CRISIL ratings has said that India's credit ratio has risen to 2.18 in the first half thanks to strong domestic demand, policy support enablers, and 40% upgrades from infralinked sectors. The CRISIL ratings credit ratio, which measures the proportion of rating upgrades to downgrades, has improved to 2.18 times in the first half of this fiscal from 1.5 times in the second half of last fiscal.

Overall, says CRISIL, there were 464 upgrades and 213 downgrades, which underscores the resilience of corporate credit quality despite all the external shocks that we've been seeing. Nearly 40% of those upgrades, in the case of CRISIL ratings, came from infrastructure and allied sectors, including roads, renewables, capital goods, and secondary steel, thanks also to the government-sustained infrastructure capex push. Downgrades were led by ceramics and polyester textiles, where there were sector-specific challenges.

In terms of outlook, cumulative rainfall has been around 12% below normal, says CRISIL, with significant regional disparities, though the impact on rural demand is expected to remain limited thanks to diversified rural income streams, policy interventions, and the resilience built over four consecutive years of favourable monsoons. And finally, a healthy financial sector, says CRISIL, is expected to support the overall funding requirements of the Indian economy. Within the financial sector, bank credit growth is expected at about 14.5% to 15.5% this fiscal, marginally higher than the approximate 14.5% last fiscal.

MSMEs, or medium and small enterprises, and retail lending will remain the key growth drivers. Meanwhile, CareEdge ratings in their report said India Inc. continued to demonstrate resilience, and that's of course the presiding theme in all these reports, with credit quality strengthening despite a persistently uncertain global environment.

So CareEdge ratings credit ratio, the proportion of rating upgrades to downgrades, has doubled to 3.95 times, this is for the first half of 26-27, from 1.93 times in the second half of the previous financial year. Overall, the strong rating environment points to a broad-based stability and a notably stronger credit environment across the rated portfolio, says CareEdge.

Why Stock Selection Is Going Beyond The Classic Large Cap And Small Cap Definition

A recent study by Abakkus Mutual Fund found that 103 companies, representing about 48% of the large and mid-cap universe, have delivered more than 20% compounded annual growth rate over the last five years.

Among large-cap stocks, 11 companies generated returns exceeding 40% CAGR, and 19 mid-cap companies also crossed the same milestone, highlighting the variation in returns across the investment universe and also reinforcing the importance of active fund management, according to that report. It also said that Indian equities are gradually transitioning into an earnings-driven market. Now, it's been a few weeks since that report, and the markets have of course corrected further.

I spoke with Vaiibhavv Chugh, CEO of Abakkus Mutual Fund, and I began by asking him how he was defining his investing strategy, given the shifts in the market, and how or what he would tell mutual fund investors to invest in terms of strategy going ahead.

INTERVIEW TRANSCRIPT

Vaiibhavv Chugh: Frankly speaking, you know what we are observing and what is, you know, there on our mind is that, you know, we need to now move away from mid-cap, large-cap, small-cap definitions per se because, you know, at aggregate level, they may show a very different picture, but if you go digress at individual stock level, the story is absolutely different. So let me give you an example. Mid-cap index, for instance, is currently trading at about 2930 PE.

One may debate that 30 PE is above 10-year LPA which is long-term average or below, you know, and then one can make an impression that things are still expensive or things are cheaper, you know, whatever the number is growing. However, if you go and digress at that in those 150 stocks, what you will find or what we have found is that about 45% of the stocks are still trading much below 30 PE. 40 odd percent stocks are above 40.

When you build a portfolio, you may look at that entry point is looking expensive because PE is at 30, but when you look at stocks level, you know, the story is absolutely different that, you know, there are so many stocks which are available at a much cheaper valuation. The second vector to that is that, you know, then comes the debate that is 20 PE is also good or bad. So for example, over last couple of months, I would say, you know, this entire IT piece on the large-cap space, for instance, if you look at large-cap IT has fallen.

So their price earning ratios have come down, valuations have come down. Valuations have come down. However, the earnings have not moved up.

So now comes the debate that if valuations come down, does that make the only reason for investors to jump in? Answer is no, because, you know, when you are paying 20 PE or even if you're now paying say 17 PE, the EPS growth is only 2-3%, you know, the hypothesis remains the same that, you know, 17 PE for a 3% earning growth, 20 PE for a 3% earning growth is still not justified. So getting cheaper does not mean that, you know, it's an investment, it makes an investment case there and there.

So there are so many contours to look at that, of course, valuations are very, very important. At Abacus, you know, we generally keep debating that a great company may not be a good stock because of the valuations you pay. So one has to look at, you know, is the addressable market growing or not?

Is the earning growth commensurate to the valuation which are being spoken about? The PEG ratio, for example, that becomes a very, very important thing. So from that parlance, you know, coming back to your original question, what I wanted to put forward was that, you know, large, mid, small, that is one part of the story.

The important part of the story is that what is happening at a stock level. And I'm sure you will also agree with me that we are in a country where the heterogeneity is quite strong. You know, you find companies from FMCG to AI to robotics to consumption to IT to cyber security or whatever.

So the heterogeneity is so wide and there are so many new evolving sectors. So one has to keep trying to find opportunities because life is much, much beyond mid, small and large per se.

Govindraj Ethiraj: Okay. We had a very good or at least most people felt that it was a fairly strong Q1. And at least there are expectations of a reasonably strong or stable Q2 as well.

Do you continue to see a connect between earnings and growth? And to what extent will that play out? Because clearly at this point, it's not.

Vaiibhavv Chugh: Frankly, when this entire West Asia crisis played out, we were also kind of thinking and, you know, there was impression and we were kind of doubtful that growth will not be that great. But I think the kind of results which we have seen, it has re-emphasised our conviction on wider India story, on the better India story. Like you also asked about earnings and growth.

You know, there are a lot of pockets where we are seeing earnings. And I would not say that there will not be a impact of, you know, higher crude prices or higher US dollar or interest rates in US. That will also have its impact.

But, you know, beyond a point, and I may sound repetitive here, but beyond a point, it is the individual company, the growth, the earning growth, how the business has been, I mean, has it shown resilience or not? All that will really matter, you know, once this short-term volatility gets settled. So, for example, if US has increased interest rates, it will have a short-term or a near-term, which you also call a near-term, there will be a near-term reaction.

But eventually, you know, that is not the entire life. People will then start looking at, if the interest rate is high, then which companies will have how much impact? And then, you know, the entire financial modelling comes into play that if US dollar was to remain high, or interest rates were to go high even in India, what will be the earnings impact?

And then what value you are paying for that story at that particular point in time? So, there are short-term knee-jerk reactions, which are very, very easy to understand. But, you know, I am sure you also have great experience.

We have always seen that knee-jerk reactions are very different from the end results. So, four years from now, five years from now, all these will start looking as missed opportunity. And I think that remains the fact.

But one has to be, again, what I said some time back, it is all about bottom-up. You know, what is happening at a particular company level is what matters the most. Ultimately, stock price return is equal to the earning growth.

That is what has stayed consistent for last 30-40 years. And earning growth has kind of replicated the nominal GDP growth. So, I think that will come into play once this entire dust settles down.

So, yeah, growth is there. We are seeing earnings in various pockets. And therefore, you know, we are finding opportunities to invest there.

Govindraj Ethiraj: Right. And, you know, for investors who are either in the market or wanting to maybe get in or more likely expand their current portfolio, so they have only two or three choices is my sense. So, either they choose a mid-cap fund or a large-cap fund or a sector fund, or they go into something different, like a multi-asset or gold ETF or silver ETF. So, the options are somewhat finite, whereas what you're saying is a slightly different way of looking at things.

So, what would be the product that they should look at which answers your or connects to your thinking, at least right now?

Vaiibhavv Chugh: If I was to invest my own money, my entire money is going in flexi-cap and small-cap, those kind of categories. But at the same time, you know, personal finance is more personal. If somebody is investing for three years, I cannot and I should not recommend a small-cap fund.

One should come in small-cap with five, seven, you know, those kind of investing years in mind. So, it purely depends on, you know, what is the time horizon, how much risk one can take. So, it becomes very, very personal.

But if you ask me, my money, definitely I am investing entirely in flexi-cap and small-cap funds. See, India is one country, you know, where there is disruption happening all across. In your house, in my house, for example, if there is a wedding, most of us are not going in office clothes.

All of us are wearing something new. There is an impact of per capita income in every household. If you have one car, I am sure the second car family will prefer will be EV car, for example, right?

Zomatoes of the world, Michos of the world are very, very common in your house, my house, and everyone's house. Cyber security has become a pivotal part of every boardroom meeting. For example, tourism, medical tourism in itself.

Tourism as a concept. I mean, if you look at even wealth management and asset management, most of these companies are going to be a big part of the economy because the evolvement has just started. These companies, from a market cap perspective, most of them are small-cap in nature or micro-cap in nature.

So, investing in small-cap, so why do I invest in small-cap is not because small-cap will become a large-cap. That is not my hypothesis. My hypothesis is that I am seeing a GDP growth in India getting risen by very, very new sectors.

You know, like we said, asset management, wealth management, EVs, cyber security, these are the new sectors which are contributing to GDP growth. And we know fundamentally if GDP growth is what is equal to earning growth, I should be present in those sectors where the next GDP evolvement is going to come from, where the EPS growth should also be there. So, my hypothesis in investing in flexi and small-cap is more related to India's story, the width which we are seeing, the heterogeneity which is coming there.

A lot of new sectors are getting evolved. We are in an economy where per capita income is growing. Per capita means a lot of new sectors will get evolved in terms of consumption, and therefore their earnings will go and so on and so forth. So, that's my view.

Govindraj Ethiraj: Right. As you look ahead and look back, what would you tell investors who've been in the market for let's say last five years and have not seen any meaningful return, and how would you convince them that they need to think even longer term?

Vaiibhavv Chugh: See, compounding, like everyone understand what compounding is. Compounding, according to me, the biggest rule is that one should never disturb compounding. And we have seen that for many, many years.

If you read Howard Marks, who is one of the best minds in the investing world, you know, in one of the books, Mastering the Market Cycles, he has given analogy of pendulum. How does pendulum works, right? He says that most of the mistakes happen at one of the extremes.

Either you become very, very greedy or you become very, very fearful. And every time we forget that pendulum will come back to the centre point, wherever you are currently, it will always come back to the centre point. In parlance of investing, that centre point is the earning growth.

Now, today, apparently, we are in a situation where there is so much of fear, we are on the left hand side of the pendulum. And we are forgetting that India's GDP, India's per capita, India's earnings, and even IP numbers, if you look at yesterday's, all of them, they are doing very, very well. And we are much lower than, you know, where the earnings are, like you refer to large and mid cap data.

One of the data we had shown there was that last two year of market is about 2%. And last two year earning growth is about 14%. So, pendulum is telling me that it will come back.

What trigger? God knows. When?

God knows. But we know that, you know, this hypothesis will also play out. So, it is better that rather than trying to time that and so on, it is good to wait and give time to investing.

Don't disturb compounding. Only reason you should be selling is that if you think India is not doing well, or if you think this entire earnings growth which we have shown or seen, or the resilience the economy has seen, all that is flawed, then one can take a call. We are very, very sure, we are meeting a lot of management, we are on the ground.

We don't see resilience not being there. It is the biggest strength of India. One day it will play out.

When market will start doing well, then people will start to time. Every time, one mistake or second mistake, one can erode the return. In fact, we do something called Reflections by Abacus, which is, I'll also share that with you.

It's full of data. One of the data we have seen there is that in last 10-15 years, if you have missed top 10 days or top 20 days, your wealth erodes by 20, 30, 40%. So, that is what bad timing does to your portfolio.

Only somebody who has a contact with God will know when to enter at the right time. Otherwise, it is good to invest and forget. In fact, I am sure you have also read the book.

There is a beautiful book called Behavioural Gap. It says that the investment return is always different than the investor return. And the difference is investor behaviour.

And I think one should keep in mind that pendulum will come back. Earnings are doing quite well at the stock level. There is resilience of the GDP.

There is resilience all across. And I think things will come back. So, better to wait for good times ahead.

Govindraj Ethiraj: Got it. Vaiibhavv, that's a good note to end on. Thank you so much for joining me.

Vaiibhavv Chugh: Thank you.