India’s current capital expenditure boom is broader and more resilient than the previous cycle, with growth spread across defence, power transmission, renewable energy, data centres, electronics manufacturing and urban infrastructure, according to TCG AMC. Shahzad Madon, its MD and CEO, says these themes have distinct earnings cycles, reducing the market’s dependence on any single sector or investment trend over the coming years.

Edited excerpts from a chat:


The TCG India Investment Opportunities Portfolio has returned 28.6% in six months. How much of that performance represents sustainable earnings growth rather than a sharp re-rating of infrastructure and capital goods stocks?
While valuation expansion has contributed to near term returns, the larger driver has been and will continue to be sustained earnings growth trajectory of the portfolio. We believe, earnings growth of this portfolio is sustainable from a medium to long term perspective. Currently, consensus estimates of 3 year forward (FY26 – 29) earnings growth is ~27% CAGR.

This Portfolio is positioned around global themes such as Energy Security, Transition & Decarbonisation, Digital Infrastructure and Defence, along with domestic themes including Manufacturing / Industry 4.0 and Mobility & Urban Development. These are structural and multi decadal themes. These tailwinds translate into stronger order books, improving capacity utilisation and multi-year revenue visibility.

Going forward, we expect returns to be increasingly earnings-led rather than valuation-led.

The disclosed capital-goods holdings alone account for about 26% of the portfolio, apart from exposure to construction, utilities and other investment-cycle businesses. Is this effectively a concentrated capex-cycle bet?
We view it differently.


Unlike the previous capex cycle, which was driven predominantly by thermal power generation and real estate, the current capex cycle is supported by multiple structural growth drivers. Our investible universe is very wide, comprising over 325 companies within the top 750 listed stocks (BSE 500 TRI + Nifty Microcap 250 TRI), representing ~40% of India’s market capitalisation. Of these, more than 275 are emerging mid- and small-cap companies, providing a wide opportunity set beyond the well-owned names.
These themes span across Aerospace & Defence, Power Generation, Distribution & Transmission, Data Centres, Renewable Energy, Electrical Equipment, Power Utilities, Telecom, Semiconductor & Electronics Manufacturing and more. This diversification across structural & multidecadal themes reduces dependence on any one sector and broadens the portfolio’s sources of growth.Each of these sub themes have tailwinds which are distinct and uncorrelated. Hence, looking at this portfolio as “Concentrated Capex-Cycle Bet”, in our view may be inappropriate.

Energy transition, defence, manufacturing, digital infrastructure and urban mobility may appear diversified, but all are linked to capital expenditure. Could these themes correct simultaneously if the investment cycle weakens?
Short-term corrections have happened and shall continue to happen in the future.

As described above, the previous capex cycle was concentrated around thermal power generation and real estate, the current cycle is underpinned by multiple structural, multi-decade growth drivers. Although these themes are linked to capital expenditure, their earnings cycles are largely uncorrelated. For example, energy security follows a different investment and earnings cycle than defence, which in turn differs from digital infrastructure, and urban development. This diversification of earnings drivers strengthens the resilience of the current investment cycle and reduces dependence on any single sector or capex trend.

After the strong rerating in several capital goods and infrastructure stocks, where do you still find a reasonable margin of safety?
We believe valuations have to be seen in light of medium to long term growth potential. Viewed from this lens, one may have a different picture. Earnings have the potential to surprise on the upside, supported by strong order books, operating leverage from higher capacity utilisation, improving execution and sustained structural demand. Our broad investible universe also allows us to remain selective, focusing on businesses where the risk-reward remains favourable despite the re-rating in some segments.

Help us understand the long-term potential of the power T&D theme and how comfortable are you with valuations at this stage?
T&D theme is broad and the opportunity extends well beyond a handful of companies. Today’s grid must support a significantly higher share of renewable energy while addressing the twin challenges of connecting geographically dispersed generation centres with consumption centres and managing the intermittent nature and timing of renewable energy generation. This necessitates sustained investments in transmission networks, grid modernisation and associated electrical infrastructure. Given the multi-year visibility of these investments, we believe earnings growth across the ecosystem can continue for several years, although stock selection becomes increasingly important at current valuations.

Which of your five structural themes of energy transition, digital infrastructure, defence, manufacturing and urban development offers the best risk-reward today, and which looks most fully priced?
Our focus is on companies that can deliver superior medium- to long-term growth, supported by earnings inflection, locked-in order book visibility and undervalued longevity of earnings growth. We prefer businesses with proven management, disciplined capital allocation, strong balance sheets and differentiated technology or process capabilities, while remaining cautious on commodity price dependencies, excessive leverage and risks of technological obsolescence.

As a result, we believe the best risk-reward opportunities today are more likely to be found at the stock level rather than by making top-down calls. We believe, given the width of our investible universe, at any given point of time, there are likely to be enough stock level opportunities, wherein risk reward is in favor of investment.

Are SIFs a genuine competitive threat to Category III AIFs, or do the two products serve fundamentally different investors?
We believe they are complementary rather than direct competitors. Every investment vehicle has a role within an investor’s portfolio, depending on individual risk appetite, investment horizon and objectives. There is sufficient room for mutual funds, SIFs, PMS and AIFs to coexist, each serving a distinct investor need while collectively broadening access to differentiated investment strategies.