Pankaj Tibrewal, founder and CIO at Ikigai Asset Management Company, describes the current stock market as a "Triveni Sangam"—a confluence of three powerful forces: earnings, capital flows, and investor sentiment. In a recent exclusive interview, Tibrewal stated that for the first time in a long while, these three elements are aligning positively, creating a compelling environment for investors.
Why Smallcaps Offer Superior Potential
Tibrewal emphasizes that the optimal way to capitalize on this market dynamic over the next three to four years is through the mid and smallcap segments. He points out that while the Nifty 100 Index is heavily concentrated in sectors like financials, energy, FMCG, and IT—where earnings growth is typically modest (10-15%)—the broader market offers significantly higher growth potential.
"If you want to look at higher-growth, higher-visibility sectors, you need to have the broader market as part of your portfolio," Tibrewal asserted.
He believes that emerging sectors and new opportunities in India are predominantly represented among companies ranked 101 to 500 by market capitalization, making the mid and smallcap space particularly lucrative with proper risk management over a three-to-five-year horizon.
Capitalizing on Pessimism: The Ikigai Small Cap Fund
Recalling the extreme market pessimism in March, when frontline indices plunged 12-14%, Tibrewal saw a unique opportunity. "Mid and smallcap was the most hated word," he noted, yet it was precisely at this time that Ikigai Asset Management launched its Small Cap Fund. This strategic timing allowed them to identify and invest in promising smallcap companies available at attractive valuations.
The fund has already demonstrated strong performance, delivering 25 percent returns over its first four months. Tibrewal highlighted their focus on companies with strong earnings momentum projected over the next two to four years, despite initial questions about the timing of the fund launch.
Surprising Q1 Earnings and a Strong Outlook
The first quarter earnings season, initially met with skepticism due to supply chain issues, raw material costs, and demand challenges, proved to be a pleasant surprise. Tibrewal shared data indicating that 398 of the top 500 companies had reported results, showing the highest top-line growth in three years, exceeding 20 percent.
- Top-line growth: Over 20% (highest in 12 quarters)
- Bottom-line growth: 13-14% (even after accounting for significant OMC losses)
Adjusting for the losses reported by Oil Marketing Companies, the aggregate earnings growth surpassed 20 percent. Significantly, the smallcap segment consistently showed the highest earnings growth over the last three quarters.
Looking ahead, the second-quarter momentum appears robust. Earnings breadth has improved, with 56-57 percent of companies reporting more than 15 percent earnings growth, up from 45-50 percent in previous quarters. Channel feedback suggests strong ground reality in July, and with the festive season approaching from August, Tibrewal anticipates continued positive performance.
The "Triveni Sangam" Explained
Tibrewal elaborated on the three pillars driving his constructive view on domestic stocks:
- Earnings Upgrades: This quarter has seen more earnings upgrades than downgrades, a reversal from recent trends, signaling fundamental strength.
- Reduced FII Selling: Foreign Institutional Investor (FII) selling has significantly decreased, providing crucial support to the market from a capital flow perspective.
- Positive Sentiment: Investor sentiment, which was previously very negative for India, has now turned decisively positive.
This powerful combination of fundamental strength, supportive capital flows, and optimistic sentiment forms the "Triveni Sangam" that Tibrewal believes will propel the Indian stock market, particularly the smallcap sector, forward.