Geopolitical headwinds have eased, oil prices have come off their highs, yet Indian markets — particularly largecaps — haven't staged a meaningful rally. What is holding them back?
Oil and geopolitics do influence markets in the short term, and the day-to-day correlation is visible. But the bigger issue is that India's fundamental growth drivers are still not strong enough. Investment levels remain below where they should be and India continues to rely heavily on services. Manufacturing and industry — which create stronger multiplier effects through employment and allied sectors — are yet to contribute at the required scale.
Between FY22 and FY24, public capital expenditure expanded rapidly, supporting a broad-based market recovery despite the Russia-Ukraine conflict. Private investment remained weak, but government spending was enough to drive growth across sectors. We need another investment cycle of that scale (post-Covid type). Manufacturing, industrial capacity and initiatives like production-linked incentives (PLI) need to be expanded meaningfully. Stronger domestic growth engines would make the economy far more resilient to external shocks.
That's the long-term picture. What about the next 12-15 months?
We've maintained since the start of 2026 that FY27 should be a recovery year for India. A favourable base, last year's policy measures, the carryover impact of a good monsoon and improving earnings should all help. Some of last year's headwinds, such as tariff uncertainty and the artificial intelligence (AI)-led divergence in global markets, are also beginning to fade. As the AI trade narrows and earnings recover, India is well placed to benefit from mean reversion.
Do you expect earnings growth in the coming quarters to be supportive?
Aggregate earnings at the index level don't tell the full story. The more relevant question is how many companies are delivering over 15 per cent earnings growth. Today, about half of the listed universe is doing that, and many are growing above 20 per cent.
If there are enough companies compounding at those rates, it's possible to build portfolios capable of delivering attractive returns even if aggregate earnings growth appears modest.
Are you comfortable with the valuations, especially in the mid and smallcap spaces where the proportion of such high-growth companies is higher?
You don't always have the luxury of buying great businesses at cheap valuations. The market is quick to recognise quality and reprice it. As institutional investors, we follow a rigorous investment process; so we may even miss the first 20-30 per cent, or sometimes more, of a stock's move.
That often means buying at valuations that may look expensive in the traditional sense. The key is to assess the runway. What is the addressable market? What are the company's competitive advantages? Can it continue compounding earnings over the next two or three years? If the answers are convincing, paying a premium valuation can still generate attractive returns.
Which sectors are you finding attractive in the current market?
It's about balancing visible growth with value opportunities. On the value side, sectors like IT services and, to some extent, banking are not performing particularly well today, but valuations are reasonable.
We believe at least some companies in these sectors can turn the corner over the next two to three years. On the growth side, industrial companies continue to offer strong earnings visibility, even though valuations are richer. There are also opportunities in consumption and new-age businesses, where the runway for growth remains long.
Healthcare is another sector we like. It isn't cheap, but it offers consistent compounding. Demand is relatively insulated from geopolitics and economic cycles, and the emergence of large hospital chains provides a long growth runway.
We remain relatively cautious on commodities. Commodity cycles today are influenced not just by demand and supply, but also by supply-chain disruptions, currency movements and de-dollarisation. This makes them much harder to predict.
You often refer to a 15 per cent return target. Are you more focused on absolute returns than benchmark outperformance?
We don't target fixed returns, but we do focus on delivering meaningful absolute returns. Investors think in absolute terms. Returns in the 13-15 per cent range remain attractive when fixed deposits yield around 7 per cent. Single-digit returns, even if they beat the benchmark, don't create the same investor experience.
We buy businesses that we believe can compound earnings at 15 per cent or more. Benchmark outperformance matters but not at the cost of delivering weak absolute returns.
 "Taher Badshah, president and chief investment officer at Invesco Mutual Fund")