Ikigai Asset Managers’ founder Pankaj Tibrewal projects double-digit market returns over the next three years, driven by robust corporate earnings rather than high valuations. He identifies Tier-2 and Tier-3 cities as the next engines for growth, expecting a strong pipeline of upcoming IPOs from these regions.
Corporate India is currently undergoing a change in its growth drivers, moving from a period of valuation-led gains to one supported by actual business performance. Pankaj Tibrewal, founder and chief investment officer at Ikigai Asset Managers, suggests that the market is set for double-digit returns over the next three years, provided companies can maintain their current profit trajectory.
The investment outlook relies heavily on recent financial data. An analysis of 165 companies among India's top 500 shows revenue growth hitting a four-year high of 22%, paired with a 25% increase in profit after tax. This indicates that for a segment of the market, the bottom-line performance is finally catching up with investor expectations. Tibrewal believes this shift provides a more sustainable foundation for capital appreciation compared to the market cycles of the past two years, where stock prices often rose without a corresponding improvement in underlying fundamentals.
The Shift to Tier-2 and Tier-3 Markets
A critical factor in this outlook is the changing geographical spread of business growth. While metropolitan hubs have historically dominated corporate success, the next wave of expansion is originating from the entrepreneurial energy of Tier-2, Tier-3, and Tier-4 urban centers. This demographic and economic shift is expected to reflect in the primary markets. Data suggests a pipeline of nearly 80 companies preparing for initial public offerings (IPOs) in the coming year, with a significant number of these businesses based outside major metro cities. This indicates that the broader Indian economy is becoming more diversified.
Why Active Management Matters
Tibrewal argues that broad market indices may not always capture the full value being generated by these smaller, emerging businesses. Because many promising, younger companies are often overlooked by passive investment strategies, he believes active fund management is necessary to uncover these hidden opportunities. A bottom-up approach, focusing on ground-level observations of specific company health rather than macro sentiment, is his preferred strategy in the current environment.
Risks and Monitorables for Investors
While the outlook for earnings-driven returns is positive, investors should remain cautious about the sustainability of these growth numbers. Future market performance will depend on whether companies can manage costs effectively and continue to deliver on their profit targets in upcoming quarters. Any sign of slowing revenue growth or rising input costs across the sector could pressure margins and dampen the expected returns. Investors should monitor quarterly earnings reports closely to verify if the 22% revenue growth trend remains consistent across broader industry segments.