Infra, EV, rare earths to gain from govt push in Samvat 2082: Deepak Shenoy

Global trade dynamics are shifting. India may have to make some concessions in agriculture but will likely gain in manufacturing and defense, Shenoy said

We let data guide our investment decisions rather than relying on subjective calls,” says Deepak Shenoy, founder and chief executive officer of Capitalmind, in a telephone interview with Devanshu Singla. Shenoy also shared insights on market valuations, sector positioning, and evolving investment themes. Edited Excerpts:

 

As we look ahead to Samvat 2082, what is your outlook for the next 12 months? 

Twelve months is a short horizon, and the past year hasn’t been particularly favorable. While expectations remain high, long-term market returns should average around 10–12 per cent annually. There are some near-term challenges - like US tariffs and a relatively slower economy due to lower inflation, which is affecting topline growth and, consequently, market returns.

 

I believe the coming year will define India’s direction. We will likely see more emphasis on domestic manufacturing and less on exports, along with a stronger government fiscal position. The government will have room to increase spending in areas like rare earths, automotive infrastructure, electric vehicles, and hydrogen fuels. So, those segments could perform well.

 

We also expect more mergers and acquisitions, as many companies now have balance sheets strong enough to pursue acquisitions.

 

Apart from US tariffs, what other global or domestic factors could restrict market momentum?

 

Japanese bond yields are rising, which could be an external factor to watch. Domestically, India’s recovery from GST needs to show up meaningfully - likely in the October–December quarter. We are also expecting a good monsoon, which should ease food prices by December. However, that could create stress for farmers, impacting subsidies and sentiment downstream. Finally, global trade dynamics are shifting. India may have to make some concessions in agriculture but will likely gain in manufacturing and defense.  ALSO READ | Small, midcaps may correct more in Samvat 2082: Nitin Bhasin, Ambit Eq

  Your Capitalmind Flexicap Fund crossed ₹100 crore AUM recently. What’s the core philosophy behind it, and how are you positioning it in current markets? 

We are actually close to ₹170 crore now. It is a multi-factor quantitative investment fund that invests across market capitalisations. We have been a quantitative house for a long time, and our philosophy is to let data guide our investment decisions rather than relying on subjective calls.

 

We analyze data through our proprietary algorithms, studying it from a historical perspective to identify what has changed and which factors currently have the most potential to generate returns. These factors determine where we invest. Essentially, we divide the market into various factors and choose the ones best suited to the prevailing conditions.

Are there any themes or sectors you are consciously avoiding in the current scenario?

One of our key principles is that price movement matters. We focus more on sectors with strong upward price trends and avoid those with significant price declines. Currently, several sectors, particularly FMCG and some microfinance or NBFC companies, have not recovered from past declines, so our algorithms are not selecting stocks from these areas. While there are fundamental reasons too, price behavior is a major factor.

 

Once the data improves, we will reconsider these sectors. Meanwhile, autos, certain financials, commodities, and some consumer durables are appearing in our portfolios. This is a natural result of our algorithm identifying stronger sectors.

 

Do you have any new fund themes or launches planned in the near future? 

Our next focus is on launching debt and hybrid funds. The filings have already been submitted to SEBI, and we are awaiting approval. Once those are through, we’ll move towards launching more products under the equity, debt, and hybrid categories.  ALSO READ | Risk-reward is tilting in favour of Indian equities: Sonam Udasi, Tata AMC

 

Any specific reasons behind focusing on debt and hybrid funds?

There is a long-standing notion that mutual funds are primarily for equity investing. We want to move beyond that. Many of our customers are asking for debt products, liquid funds, and hybrid options. They are looking for systematic transfer plans, tax-advantaged arbitrage funds, and products that offer a mix of equity, debt, and commodities. So, we are expanding to cater to those needs.

 

You often raise cautions about overvaluation and high-PE stocks. How do you currently assess market valuations?

  The market is currently trading at around 21 times earnings. If India grows at 12-15 per cent annually, say 14 per cent, the index could become four times in 10 years. Even if the PE ratio halves from 20 to 10, investors would still double their money over the decade, yielding about 7-8 per cent annually. This is an extreme scenario, yet equities would still outperform debt, which typically offers around 5 per cent.

 

At an aggregate level, I don’t find valuations overly concerning. However, some stocks, especially those with no growth trading at 70-80 times earnings, like many FMCG companies, are clearly overvalued. On the other hand, I am comfortable paying higher valuations for companies growing 20 per cent or more, as their earnings can justify the prices.

 

How are your PMS portfolios currently positioned in terms of sector allocation? 

Our Surge India portfolio focuses on India-centric growth, especially domestic consumption, manufacturing, and energy independence. Key areas include intermediate goods, machine tools, and energy transmission and distribution.

 

We also invest in transportation, hospitality, and financialisation themes - covering banks, NBFCs, and financial infrastructure. Additionally, we like long-term infrastructure such as roads, logistics, and airports.

 

On the quantitative side, our Momentum portfolio tracks price trends and currently includes hospitals, NBFCs, and commodity-linked stocks. These are short-term plays, as the portfolio composition changes every few months.

 

You emphasize algorithmic and rule-based investing. But in a market driven by narratives, how do you balance system-driven strategies with discretionary judgment?

 

You don’t really balance the two. Either you are fully discretionary or primarily quantitative with a thin discretionary overlay. Some of our portfolios, like Surge India, are fully discretionary. Our mutual fund, however, is purely quantitative. Going forward, we will continue to differentiate between the two - clearly labeling strategies as either discretionary or quantitative.