How do you position fixed income in light of the uncertainty surrounding the interest rate cycle and yield curve movements, now that life insurers inherently operate on long-term debt?
Given the long term of our liabilities, our fixed income positioning is anchored in asset-liability matching rather than tactical interest rate increases. Although the global interest rate cycle appears to be closer to stabilization, domestic liquidity, fiscal supply dynamics and the inflation trajectory continue to influence yield curve movements.
That’s why we keep the duration in line with the liabilities, while selectively diversifying assets at attractive yields. We continue to look for acceptable credit that meets all our risk criteria, together with a proportionate credit and maturity spread. In a bandwidth environment, carry and disciplined implementation tend to be more rewarding than endurance strategies.
How do you evaluate allocations to emerging opportunities such as REITs, InvITs and other alternative assets within the broader asset-liability management framework?
REITs and InvITs are assessed as strategic portfolio assets rather than tactical return enhancers. For long-term investors like us, these instruments offer stable cash flows, superior risk-adjusted returns and diversification beyond traditional fixed income. However, the overall allocation to these assets remains stable. We focus on large sponsors, high-quality assets, manageable leverage and stable distributions. Over time, as the ecosystem matures and secondary market depth improves, these assets could play an even greater role in improving portfolio returns.
How do you assess the current market construction in terms of valuation comfort versus earnings visibility?
The market today reflects selective comfort rather than broad valuation comfort. Large caps offer a relatively better alignment between earnings, visibility and multiples, supported by strong balance sheets and resilient cash flows. In contrast, certain segments of mid- and small caps are pricing in optimistic multi-year growth assumptions.
India’s structural growth story remains intact, but the liquidity-driven revaluation has largely taken place so far. The next leg of returns should be profit-oriented. We therefore remain constructive yet selective and favor companies with pricing power, capital efficiency and sustainable profits over thematic or story-driven activities.
Corporate profit growth is showing signs of improvement. Do you think there will be a full profit recovery from FY27 onwards?
We are seeing the first signs of normalization after a period of margin compression and an uneven recovery in demand. That said, a full-fledged earnings recovery from FY27 onwards will depend on sustained private investment, continued financial sector strength and stability in external demand. Our base case assumes a progressive and broadening recovery rather than a sharp increase. Companies that have invested and maintained balance sheet discipline during the economic slowdown are best positioned to lead at this stage.
Do you expect earnings growth to spread across sectors, or to remain focused on certain themes such as financial, manufacturing or consumption?
The financial services sector remains structurally well positioned, given credit penetration, normalization of asset quality and strong capitalization. The manufacturing and industrial sectors continue to benefit from supply chain diversification and government investment momentum. However, for markets to deliver sustainable returns, profits must expand beyond these pillars. The recovery of consumption, especially in the rural and mass segments, will be of true breadth of importance. The next phase will likely reward diversification and bottom-up selection. Our positioning reflects that balance.
Small and mid-cap stocks have seen significant participation from retail investors in recent years. How do you evaluate risk-return in this segment, especially from the lens of capital preservation for policyholders? Do you think small caps will recover in FY27?
From the policyholder’s perspective, capital preservation and risk-adjusted returns remain of paramount importance. Although small and midcaps have achieved strong returns, the spread within the segment is extremely wide. The quality of balance sheets, governance standards and sustainability of profits vary widely. We therefore remain very selective. A broad-based recovery in FY27 will require sustained earnings performance and supportive liquidity conditions. The next phase will likely reward quality and visibility of cash flow rather than momentum-driven participation.
Which market segments are you bullish on based on both earnings growth and valuation comfort?
Large-cap financials continue to offer an attractive mix of earnings visibility and reasonable valuations. Certain industrial and manufacturing companies with strong order books and operating leverage also stand out.
Within consumption, opportunities arise at the intersection of rural recovery and premiumization, although we remain mindful of valuations. Overall, our approach remains consistent: constructive on India’s medium-term growth trajectory, but disciplined on valuation and quality. The coming phase is likely to be profit-driven and selective, rather than broad-based and liquidity-driven.
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