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ETMarkets AIF Talk | Aerospace, electronics, CDMO, auto ancillaries: Where Rajesh Kothari sees India’s next growth opportunities | The Local News
India’s next phase of growth could be driven by a broader set of industries than the traditional large-cap leaders. From aerospace and electronics to CDMO, auto ancillaries and niche capital goods, several sectors are emerging as potential beneficiaries of manufacturing, supply-chain and structural shifts.
But with valuations richer in parts of the market, identifying the right businesses—and paying the right price—remains critical. Rajesh Kothari, Founder and Managing Director at AlfAccurate Advisors, believes the investment opportunity in India is expanding at the sector and company level.
His focus remains on businesses with sustainable growth, strong fundamentals and valuations that make investment sense, rather than simply chasing the next popular theme. In an interaction with ETMarkets, Kothari explains where he sees the most promising growth opportunities over the next three to five years, how he evaluates businesses across sectors, and why investors need to balance growth potential with valuation, business quality and margin of safety while looking for the next wealth-creation opportunities.
Edited Excerpts -Q) India is no longer a cheap market. Good businesses are trading at premium valuations.
Is the biggest challenge today finding quality companies—or finding quality companies at prices that still make investment sense? A) In our view, the basket of investment opportunities in India is expanding.
Several sectors offer strong growth potential over the next three to five years, including aerospace, electronics, CDMO, auto ancillaries, niche capital goods and platform companies. While valuations have certainly become richer in certain pockets, we continue to find attractive opportunities across sectors where businesses offer strong growth prospects at reasonable valuations.
The key is to look beyond broad market valuations and identify opportunities at the sector and company level. Our focus remains on businesses with sustainable growth, strong fundamentals and valuations that make investment sense.
Q) Your investment philosophy talks about “Protect Capital, Create Wealth.” In a market obsessed with returns, has capital protection become an underrated part of portfolio management?
A) Human behaviour plays a critical role in investing. When markets are driven by greed, investors need to be cautious; when fear dominates, that is often when the best opportunities emerge.
At AlfAccurate, risk management is central to our portfolio management. We believe capital protection is not about avoiding risk, but about understanding it, managing it and ensuring that we are adequately compensated for taking it.
Our philosophy of “Protect Capital, Create Wealth” is about having the discipline to be cautious when others are greedy and the conviction to be opportunistic when others are fearful. Read more: $100 crude is an irritant, not a deal-breaker for India: Harsh Gupta MadhusudanQ) Please take us through the recent performance of your funds.
A) All our funds have outperformed their respective benchmarks across 1, 2, 3 and 5-year periods, reflecting the consistency of our investment approach. A particular highlight has been our mid and small-cap PMS, AAA Budding Beasts, which has delivered over 22% CAGR returns over both 3 and 5 years.
What makes this performance particularly encouraging is that the strategy has held up well even during the challenging market conditions of the last one to two years. For us, the real achievement is not just generating strong returns, but delivering them consistently across market cycles.
9% versus 8% for the BSE 500, but it also trades at a much higher P/E multiple. How do you justify paying for growth without falling into the valuation trap?
A) I strongly believe that P/E should not be looked at in isolation. The right lens is PEG, alongside the return on equity (ROE) of the portfolio.
A company with a higher ROE deserves to command a higher P/E than a company with lower capital efficiency. If it also delivers superior earnings growth, a valuation premium can be justified.
Our India Equity Fund is a good example. Despite its higher P/E, the portfolio is cheaper on a PEG basis than the BSE 500, while delivering an ROE of over 20%, compared with less than 15% for the benchmark.
The point is simple: a higher P/E does not necessarily mean a more expensive portfolio if the growth and quality of earnings justify it. Q) Your portfolio is multicap, but the allocation appears tilted towards larger companies.
Is this a conscious defensive positioning, or are opportunities in the mid and small-cap universe becoming harder to find? A) Our multicap approach is driven by bottom-up stock selection, not by predetermined market-cap allocations.
We continue to find attractive opportunities across the market-cap spectrum. However, we believe portfolio allocation should reflect where we see the best risk-reward, rather than follow a fixed allocation to midor small-cap stocks.
Our larger-company exposure is not a defensive call; it reflects our conviction in the opportunities we currently find most attractive. Read more: Nifty oversold, IT poised for pullback: Anand James on what traders should do nextQ) The GEMS Fund has delivered strong returns since inception, but it is also buying companies at a significant valuation premium to the broader market.
Is this growth investing—or are investors taking valuation risk they may not fully appreciate? A) GEMS is built around identifying exceptional businesses with the potential to deliver sustainable, above-market earnings growth.
Such businesses often command a valuation premium. However, the key is to assess not just the quality of the business, but also where it stands in its business cycle and how much growth is already priced in.
Getting the business right is important, but getting the business cycle right is equally critical. We believe this is essential to managing valuation risk while capturing the long-term growth opportunity.
Q) The factsheet talks about proprietary forensic and longevity frameworks focusing on governance, earnings quality and balance-sheet strength. Can you explain what typically raises a red flag before the market discovers the problem?
A) Our forensic framework looks beyond reported profits to understand the underlying quality of earnings and financial health of a business. Red flags include persistent gaps between profits and operating cash flows, rising receivables or inventory without corresponding sales growth, unexplained related-party transactions and deteriorating balance-sheet strength.
Our longevity framework goes a step further, evaluating whether the business has the competitive advantages and financial strength to sustain growth over the long term. The key is to identify the cracks in a business before they become visible in its reported performance or market price.
Q) AlfAccurate follows what it calls the 3M framework—Market Size, Market Share and Margin of Safety. Why these three?
And which of these is most often ignored by investors chasing the next multibagger? A) Our 3M framework brings together three essential elements of wealth creation.
Market Size defines the growth opportunity. Market Share determines how much of that opportunity a company can capture.
Margin of Safety ensures that we do not overpay for that opportunity. Investors chasing multibaggers often focus on the first two, but overlook the third.
A large market and a winning business can create a great story, but only the right entry valuation can make it a great investment. Q) What is more dangerous today: missing a multibagger or owning an overvalued stock?
A) Missing a multibagger may cost you an opportunity, but owning an excessively overvalued stock can cost you capital. We do not believe investors need to own every multibagger to create wealth.
What matters is building a portfolio of businesses with strong fundamentals, sustainable growth and sensible valuations. In investing, the opportunity you miss may be forgotten, but the capital you permanently lose is much harder to rec over.
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