Veteran investor Pankaj Tibrewal of IKIGAI Asset Management explains why investors must move away from growth models reliant on cheap loans. He suggests shifting focus toward companies with strong internal cash flows and self-funded growth as high global interest rates change how the market values stocks.
The global financial environment has shifted significantly, and the era of near-zero capital costs is likely in the past. With US Treasury yields sustaining higher levels, the benchmark for all investments has changed, making it harder for companies to grow simply by borrowing money. This transition requires a change in investor strategy, moving away from companies that rely heavily on debt to fuel expansion and toward those with strong underlying business fundamentals.
Valuation and Domestic Strength
While global markets, particularly in the US, have faced challenges related to high valuations in the technology sector, Indian markets present a different narrative. Forward earnings multiples on the Nifty have compressed by approximately 30 percent over the last two years. This adjustment in valuations has created a more reasonable entry point for investors who prefer fundamental growth over momentum-driven speculation. The domestic economy shows resilience, and the current environment favors companies that can fund their own growth without constant reliance on external capital.
Sectors and Strategic Focus
Portfolio positioning is increasingly tilting toward companies that demonstrate internal capital efficiency. Financial institutions are seeing renewed interest as the pressure on net interest margins—the difference between the interest a bank earns on loans and the interest it pays on deposits—begins to stabilize. In the materials sector, including specialty chemicals, cement, and metals, improvements in industrial capacity usage are likely to support profitability. Additionally, the healthcare sector, particularly contract development and manufacturing organizations, continues to benefit as companies globally reorganize their supply chains. A significant portion of these portfolios is currently aligned with the domestic Indian economy, prioritizing balance sheet strength.
The Energy Risk Factor
One of the primary external risks to this outlook is energy price volatility. Current earnings projections assume crude oil prices remain within the $90 to $100 per barrel range. If oil prices were to consistently rise above $110 per barrel, it would likely force a downward revision of earnings estimates across various sectors. Despite this risk, India’s reduced oil intensity and strong services export data act as a buffer against broader global economic pressures. For investors, the most critical monitorable remains the quality of leadership and the ability of a business to maintain profit margins in a higher-interest-rate environment.