‘We’ve borrowed returns from the future and are currently ahead of fundamentals’

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₹24,883 crore as of 8 August. He believes that valuations are high, and caution is needed. In the near to medium term, equities might produce slightly lower returns than their underlying fair values.

“We’ve essentially borrowed returns from the future and are currently ahead of fundamentals," he said. Edited excerpts: Over the past 15 to 20 years, we've observed a significant market trend: investing in companies with superior business quality and strong growth characteristics dramatically increases your chances of outperforming the market. These companies offer a 2 in 3 chance of beating the market, compared to just 1 in 3 for companies lacking these attributes.  Our analysis of NSE 500 companies revealed that low-growth, low-ROE (return on equity) companies (8-10%) have outperformed, while high-growth, high-ROE companies (18-20%) have underperformed.

This suggests micro bubbles in low-quality segments, posing a risk of permanent capital loss as stock prices have surged 70-80%, outpacing intrinsic value growth. Conversely, high-growth companies (15-20% intrinsic value growth) are better investments, as they eventually become fairly valued and then undervalued, offering superior returns when the market recognizes their true worth. We believe the best investment opportunities lie in companies with higher-than-average returns on equity, indicating good business quality, and the ability to grow faster than average.

Specifically, these are companies with expected sales growth rates exceeding 20% per annum and returns on equity over 15%. So, if you, as an investor, intend to deploy capital in this expensive market, the best opportunities lie in high-quality and high-growth segments. In our research, we find that stock prices