Performance, Positioning, and the 2026 Outlook

The 2025 annual investor call focused on reviewing portfolio performance through a year of narrow market leadership, understanding the key drivers of returns, analysing capital flows and macro conditions, and outlining expectations for 2026. The discussion emphasised discipline, selectivity, and the importance of bottom-up stock selection in an increasingly segmented market environment.

 Long-term performance and risk profile

Since inception, the fund has compounded capital meaningfully while maintaining a disciplined drawdown across cycles. An investment of ₹1 crore at inception has grown to approximately ₹4.47 crore, compared to ₹3.56 crore for the benchmark, translating into a post-fees annualised IRR of 18.12% versus 15.16% for the benchmark.

Importantly, this outperformance has been achieved with lower volatility and reduced beta. Portfolio standard deviation stands at 15.35% compared to 16.07% for the index, while beta remains at 0.83, underscoring a consistent focus on risk-adjusted returns rather than headline performance alone. The emphasis throughout the call was that wealth creation over full cycles requires balancing return generation with drawdown control.

Understanding 2025: a year of narrow leadership

Market performance in 2025 remained unusually narrow, with returns concentrated in a limited set of companies. Headline indices delivered modest returns, reinforcing that broad market exposure alone was insufficient to generate meaningful alpha.

A key theme discussed was the structural shift in market ownership. Foreign Institutional Investor (FII) ownership declined to 15-year lows, while Domestic Institutional Investors (DIIs) emerged as the dominant marginal buyers of Indian equities. Domestic inflows, supported by structurally strong SIP contributions, more than offset FII outflows during the year.

This change in ownership dynamics has important implications: capital increasingly favours businesses with scale, growth, and earnings visibility. As a result, market breadth has remained constrained, and dispersion across stocks has widened—an environment where disciplined stock selection becomes critical.

Performance attribution: selection over allocation

The call spent considerable time breaking down what actually drove returns during the year. Performance attribution clearly showed that the majority of outperformance in 2025 was driven by stock selection rather than sector allocation.

Key contributors included Mining & Minerals, FMCG, Auto & Auto Components, and Information Technology. In Mining & Minerals, returns were largely driven by strong stock selection, even as the portfolio remained cautious on incremental exposure due to elevated valuations. In IT, relative performance benefited from an underweight stance, with exposure now being gradually increased in a measured manner.

FMCG returns were once again selection-driven, with a preference for businesses controlling distribution channels rather than traditional brand-led models. In Auto & Auto Components, despite being underweight at a sector level, stock-specific positions contributed meaningfully to returns, reinforcing a selective rather than directional approach.

On the detractor side, Capital Goods and Healthcare weighed on performance. Capital Goods underperformance was largely attributable to trimming exposure to ABB after strong gains in prior years as valuations expanded. Healthcare was impacted by tariff-related concerns that led to sharp, headline-driven drawdowns. However, the relatively muted selection effect highlighted the resilience of underlying earnings quality across portfolio holdings.

The key learning emphasised was around position sizing under headline-driven risk, particularly in sectors exposed to regulatory or policy shocks. While conviction in business fundamentals remains central, portfolio-level risk management plays an equally important role.

Capital flows and global context

Beyond domestic flows, the call examined asset-class performance and global equity trends. Precious metals, particularly silver and gold, outperformed during the year, while PSU banks emerged as one of the strongest equity segments domestically.

Globally, 2025 was marked by significant divergence across markets. Countries such as South Korea delivered exceptional returns driven by strong earnings growth, while developed markets like the US continued to demonstrate long-term compounding consistency despite shorter-term volatility. We are also beginning to see signs of underperformance of the Mag 7 (led by technology) compared to the benchmarks in the US.  The broader takeaway was that earnings delivery matters far more than geography in determining equity returns.

Macro framework: India’s balance sheet

The macro discussion was framed through the lens of India’s “P&L”. On the revenue side, tax growth moderated, driven by slower GST collections and lower personal tax growth. On the expenditure side, government capex remained robust and aligned with budgeted targets.

While fiscal metrics may face pressure if revenue growth undershoots, inflation remains contained, providing policy flexibility—particularly on interest rates. The base case discussed was that FY26 may see continued fiscal support alongside stable macro conditions, setting the stage for stronger growth further out.

The emphasis was that macro conditions appear stable rather than euphoric, favouring selective, bottom-up investing over broad market calls.

Portfolio positioning and earnings quality

Current portfolio positioning continues to reflect a focus on earnings strength and operating leverage. Relative to the benchmark, the portfolio exhibits higher topline growth and superior margin profiles, driven by businesses with pricing power and resilient cost structures.

Sector exposures are aligned around five core themes: consumer and spending (with a focus on distribution), mining and metals, financials, healthcare and pharma, and industrialisation/GDP-linked sectors. Across these themes, the common thread remains balance-sheet discipline and earnings visibility.

Expectations from 2026

Looking ahead, the base case for 2026 is for low double-digit index returns, accompanied by periodic volatility. Market breadth is expected to remain narrow, continuing to reward stock selection over sector-level or index-driven strategies.

Capital flows into India are expected to remain structurally supportive, particularly if global investors seek diversification amid evolving geopolitical and technological themes. While global risks remain, domestic fundamentals provide a relatively stable anchor.

For the portfolio, this translates into an emphasis on selectivity over direction, with positioning evolving dynamically as valuations, earnings visibility, and risk-reward conditions change.

Key takeaways from the call

• 2025 reinforced the importance of stock selection in a narrow, high-dispersion market.
• Structural domestic flows have altered market dynamics, favouring earnings visibility and scale.
• Portfolio outcomes were driven more by selection with a balance coming from allocation, validating the bottom-up approach.
• Macro conditions remain stable, supporting selective investing rather than broad market bets.
• Looking into 2026, dispersion, discipline, and growth are expected to matter more than index direction.