| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Compounding Gems Aravalli Fund navigated Q1 2026 by maintaining disciplined inaction during Middle East geopolitical turmoil that created three macroeconomic pressures on India: energy inflation from oil imports limiting RBI rate cuts, rupee volatility from dollar strength reducing FII returns, and remittance risk from regional disruption threatening the current account. The manager resisted the urge to trade around headlines, trusting the structural integrity of portfolio holdings. The strategic avoidance of Indian IT services, based on 18-24 months of research with Amazon, Microsoft, and Nvidia engineers, proved prescient as Generative AI fundamentally disrupts the sector's linear headcount model. The fund exited Shree Digivijay Cement after private equity and management began selling, signaling the turnaround opportunity had been fully realized. After nearly two years of sideways markets serving as a time correction, the manager's outlook has shifted to positive. Valuations now offer significant margin of safety, expectations have reset, and India Inc. earnings growth remains strong, creating what the manager believes is fertile ground for the next bull market.
The manager maintains a disciplined, bottom-up approach focused on high-quality Indian businesses, avoiding speculative macro trading during geopolitical crises. After 18-24 months of market underperformance serving as a time correction, valuations have become increasingly attractive with significant margin of safety. The strategic avoidance of the Indian IT services sector, based on extensive research revealing fundamental AI-driven disruption, has protected capital. With expectations reset, excesses diminished, and strong underlying earnings growth intact, the manager believes the portfolio is positioned on fertile ground for the next bull market cycle.
After nearly two years of navigating a sideways-to-downward market, the manager's outlook has officially shifted to positive. The time correction has served its purpose, with expectations reset and excesses diminished due to recent war-related volatility. Meanwhile, earnings growth of India Inc. remains strong. The manager believes the 18-24 months of underperformance has sown the seeds of the next bull market. However, caution remains regarding the sustainability of the April ceasefire and the long-term impact of AI on various sectors beyond IT services.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jun 19 2026 | 2026 Q1 | - | AI, geopolitics, India, IT Services, Middle East, oil, valuation | - | India-focused fund maintained discipline through Q1 2026 geopolitical shock, avoiding reactive trading despite oil-driven inflation, rupee weakness, and remittance risks. Strategic IT sector avoidance based on extensive AI disruption research protected capital as traditional service providers face structural headwinds. After 18-24 months of market correction resetting valuations and expectations, outlook shifts positive with strong earnings growth intact and attractive entry points emerging. |
| Jun 19 2026 | 2025 Q5 | - | earnings, emerging markets, Geopolitical, India, infrastructure, large cap, Valuations | - | Indian equities underperformed in 2025 with Nifty up 10.5% versus MSCI EM up 27%, prompting a shift to large caps offering better value. The earnings downgrade cycle appears over with 2026 expected to deliver growth across industries. Despite geopolitical risks and near-term headwinds, India's structural drivers remain intact. Current underperformance is viewed as temporary with high-quality holdings positioned for long-term outperformance. |
| Oct 28 2025 | 2025 Q3 | RAYMOND.NS | AI, geopolitics, India, long-term, Quality, value | - | Khandelwal focuses on quality compounding businesses in India's structurally growing economy while navigating global geopolitical shifts. Portfolio shifted to larger caps with better value, maintaining 10% cash. Near-term returns constrained by high valuations but 5-10 year outlook promising. Opportunities in undervalued financials and consumer discretionary. Emphasizes patience, discipline, and fundamentals over market sentiment. |
| Jul 15 2025 | 2025 Q2 | - | Cash, Geopolitical, India, infrastructure, large cap, Trade Policy, valuation | - | Indian fund manager maintains cautious stance with 25% cash amid geopolitical volatility and market overvaluation concerns. Shifting toward large caps after governance-related loss. Expects US-India trade deal to drive near-term performance while government infrastructure spending supports growth. Long-term bullish on India's demographic advantages despite consumer spending slowdown and manufacturing challenges from Chinese regulatory barriers. |
| Apr 1 2025 | 2025 Q1 | - | China, geopolitics, India, Manufacturing, Onshoring, tariffs, Trade Policy, Trump | - | Trump's tariff tsunami creates a manufacturing renaissance opportunity for India as global supply chains shift away from China. With 45% cash reserves, the fund expects excellent deployment opportunities over 6-12 months despite current elevated valuations. India's geopolitical neutrality, digital infrastructure, and policy support position it to potentially outperform markets and emerge as the next superpower. |
| Jan 1 2025 | 2024 Q4 | - | deployment, Gdp, Geopolitical, India, Trade Policy, Valuations | - | Indian equity fund deploys 40% of capital in Q4 while maintaining high cash due to stretched valuations. Manager expects cyclical GDP recovery and return to fundamentals-driven investing in 2025. Bullish on India's long-term resilience despite current overvaluation concerns, particularly in small-caps. Favors undervalued FMCG and private banks over expensive electronics and hotels. |
| Dec 31 2024 | 2024 Q4 | - | deployment, Gdp, Geopolitical, India, Trade Policy, Valuations | - | Indian equity fund deploys 40% of capital in Q4 while maintaining high cash due to stretched valuations. Manager expects cyclical GDP recovery and return to fundamentals-driven investing in 2025. Bullish on India's long-term resilience despite current overvaluation concerns, particularly in small-caps. Favors undervalued FMCG and private banks over expensive electronics and hotels. |
| Sep 30 2024 | 2024 Q3 | RESOURCEFUL.NS | fundamentals, growth, India, small caps, Valuations, value | - | Indian fund manager launches with value-focused approach targeting quality companies below 30x P/E. Concerned about small-cap euphoria with 50-70x multiples resembling bubble conditions. Maintains high cash levels, deploys gradually. India GDP growth 6-6.5% supports long-term thesis but current valuations suggest caution. Focus on fundamentals, competitive advantages, and sectoral diversification while waiting for better entry points. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
OilIndia imports the majority of its crude oil, and rising oil prices due to Middle East conflict act as an immediate tax on corporations and consumers. This energy inflation limits the RBI's ability to cut rates and raises the possibility of rate hikes, impacting financial services stocks. Oil price volatility is a key macroeconomic pressure facing the portfolio. |
Energy Inflation Crude Oil Middle East Geopolitics Inflation |
IndiaThe manager is India-focused and discusses three macroeconomic pressures: energy inflation from oil imports, rupee volatility from dollar strength, and remittance risk from Middle East disruption. Despite recent turbulence, Indian market valuations are increasingly attractive after 18-24 months of underperformance. The manager's outlook has shifted to positive, believing the seeds of the next bull market are being sown. |
Indian Rupee Remittances Valuation Bull Market Earnings Growth | |
AIThe manager conducted extensive research with engineers at Amazon, Microsoft, and Nvidia over 18-24 months. Insights from the front line of the AI revolution revealed that productivity gains from Generative AI are fundamentally disruptive to the linear headcount model of Indian IT services. The manager chose to avoid the IT sector entirely, viewing AI as a structural threat to traditional service providers as enterprises shift spending to internal AI infrastructure. |
Generative AI IT Services Productivity Disruption Indian IT | |
GeopoliticsThe recent Middle East conflict has shifted market focus from technology advancements to geopolitical risk. The manager views geopolitics as the uninvited guest at the table of fundamentals. The sustainability of the April ceasefire is the crucial X-factor, as geopolitical wounds do not heal quickly and structural damage to supply chains and energy markets takes longer to repair than headlines suggest. |
Middle East Conflict Ceasefire Supply Chains Energy Markets | |
| 2025 Q5 |
IndiaIndian equities lagged global markets in 2025 with Nifty 50 and Sensex up 10.5% versus MSCI Emerging Markets up 27%. Valuations have become reasonable, earnings downgrade cycle appears over, and 2026 could see earnings growth across industries. India's structural drivers remain intact despite short-term volatility, supported by domestic demand, formalization, and public infrastructure investment. |
India Nifty Sensex Emerging Markets Valuations |
EarningsThe earnings downgrade cycle in India appears to be over, with 2026 expected to see earnings growth across industries. NBFCs saw robust expansion in gross assets with growth led by retail and services segments, though unsecured lending moderated following tighter capital norms from the Reserve Bank of India. |
Earnings NBFCs Growth India | |
ValuationsIndian equity valuations have become reasonable after underperformance in 2025. The manager shifted focus and allocation to larger companies that offer better value compared to small and mid-cap segments presently. The Buffett Indicator (Market Cap/GDP) is approximately 125% based on projected nominal GDP. |
Valuations Large Cap India Market Cap | |
Infrastructure SpendingSustained public investment in infrastructure is identified as a key pillar supporting India's domestic demand and economic resilience. Improvements across taxation, digital public infrastructure, and financial inclusion have strengthened economic efficiency and broadened participation. |
Infrastructure India Public Investment Digital | |
| 2025 Q3 |
IndiaIndia is positioned as one of the few large economies with strong real growth potential, though structural constraints limit full global value chain engagement. The manager sees specific opportunities in undervalued financials and consumer discretionary sectors that have lagged recent market trends. |
GDP Growth Consumption Demographics Valuations Emerging Markets |
AIIndia's IT services sector has largely missed latest technological advancements with limited investment in emerging technologies. The start-up ecosystem needs to focus on developing AI products rather than just infrastructure, drawing parallels to the internet boom where product innovators ultimately captured lasting value. |
Technology Innovation Products Infrastructure Startups | |
Trade PolicyThe post-WWII US-led global financial system is undergoing significant structural transition with trade wars, rising protectionism, and geopolitical conflicts accelerating the shift toward regional economic blocs and multipolar equilibrium over the next two decades. |
Geopolitics Protectionism Regional Blocs Multipolar Sanctions | |
GoldGold and silver are likely to serve as effective stores of value amid monetary instability as countries diversify reserves and trade settlements, with continued volatility expected in currency and commodity markets. |
Store of Value Monetary Instability Currency Reserves Commodities | |
| 2025 Q2 |
GeopoliticalMultiple conflicts affected markets including India-Pakistan tensions following terrorist attacks in Kashmir, and Iran-Israel war. Despite initial volatility, markets showed resilience and recovered quickly after ceasefires. |
Conflict Kashmir Resilience Recovery Volatility |
Trade PolicyUS-India trade deal expected mid-July with market optimism for favorable outcome. Trump tariff policies created initial volatility but subsequent negotiations led to recovery across asset classes. |
Tariffs Negotiations China Manufacturing Deal | |
Infrastructure SpendingGovernment-led investments in defense and infrastructure, along with effective infrastructure monetization, are expected to be primary growth drivers for the remainder of the year. |
Defense Government Investment Growth Monetization | |
| 2025 Q1 |
Trade PolicyTrump's announcement of broad reciprocal tariffs ranging from 10% baseline to 27% on India and 34% on China represents a radical attempt to rebalance trade and reshape global supply chains. This tariff tsunami is driven by decades of U.S. economic strain from globalization, manufacturing job losses, and unsustainable current account deficits. |
Tariffs Trade War Protectionism Supply Chain Globalization |
OnshoringAs the world shifts away from reliance on China due to tariff-induced isolation, India has a unique opportunity to capture a larger share of global manufacturing. This transition is already happening across electronics, electric vehicles, active pharmaceutical ingredients, and textiles sectors. |
Manufacturing Supply Chain Reshoring Production China Alternative | |
IndiaIndia is strategically positioned to emerge as the next superpower by mid-century with geopolitical neutrality, manufacturing renaissance opportunities, advanced digital infrastructure, and supportive policy momentum including PLI schemes and infrastructure investment. The country could outperform US and other emerging markets. |
Superpower Demographics Digital Infrastructure PLI Neutrality | |
| 2024 Q4 |
IndiaIndia should continue to display macroeconomic resilience with key indicators such as current account deficit, fiscal deficit, and inflation staying under control, positioning the economy for sustainable growth. GDP growth has recently slowed due to decreased government and consumer spending, but this trend is viewed as cyclical and expected to improve in coming quarters. |
GDP Resilience Growth Macroeconomic Deficit |
Trade PolicyChange in US leadership under President-elect Trump following a US-first policy is likely to ease geopolitical tensions in Ukraine-Russia and Middle East short term. However, the likelihood of trade wars and currency volatility, especially for developing economies, will increase significantly. |
Trade Wars Currency Volatility Geopolitical Policy | |
| 2024 Q4 |
IndiaIndia should continue to display macroeconomic resilience with key indicators such as current account deficit, fiscal deficit, and inflation staying under control, positioning the economy for sustainable growth. GDP growth has recently slowed due to decreased government and consumer spending, but this trend is viewed as cyclical and expected to improve in coming quarters. |
GDP Resilience Growth Macroeconomic Deficit |
Trade PolicyChange in US leadership under President-elect Trump following a US-first policy is likely to ease geopolitical tensions in Ukraine-Russia and Middle East short term. However, the likelihood of trade wars and currency volatility, especially for developing economies, will increase significantly. |
Trade Wars Currency Volatility Geopolitical Policy | |
| 2024 Q3 |
IndiaIndia's dynamic growth story continues with GDP expected to grow 6-6.5% in FY2024, supported by government infrastructure projects, strong services sector, and consumption demand. The market shows resilience despite global uncertainties, with domestic demand and structural reforms driving growth potential. |
GDP Growth Infrastructure Domestic Demand Services Consumption |
Small CapsSmall and mid-cap companies in India have reached extreme valuations with P/E ratios of 50-70x or higher, showing euphoria reminiscent of previous bubble cycles. The manager is finding value but being more selective, using strategies like spreading acquisitions over time and focusing on fundamentals to navigate this environment. |
Valuations P/E Ratios Euphoria Selectivity Fundamentals | |
ValueThe fund focuses on companies with P/E ratios lower than 30x on trailing basis, strong management, competitive advantages, and 15-20% anticipated growth rates. Portfolio selection combines quantitative analysis of financial ratios with qualitative assessment of leadership quality and market positioning. |
P/E Ratios Management Quality Competitive Advantage Growth Rates Financial Analysis |
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