The Indian investment landscape is experiencing a strategic shift, with midcap IT firms, private banks, and hard assets emerging as prime investment opportunities according to Pankaj Tibrewal from IKIGAI Asset Managers. In a recent interaction with ET Now, Tibrewal provided comprehensive insights into sectoral trends, capital market dynamics, and the transformative role of AI in Indian IT services.

Midcap IT Positioned for Superior Growth

Tibrewal drew a clear distinction between largecap and midcap IT performance trajectories. He noted that while growth momentum in large IT companies remains moderate with stable margins, midcap players are positioned for accelerated expansion. "Growth momentum in large IT companies is okay, not too bad, not too great, and margins have held up. Mid and smallcap IT names could see faster growth as clients adopt AI and companies pivot," Tibrewal explained.

The investment manager emphasized his preference for faster-growing midcaps despite higher valuations, arguing that robust growth prospects can justify premium pricing.

AI Transformation Challenges and Opportunities

Addressing the AI transition in Indian IT, Tibrewal expressed cautious optimism while highlighting structural challenges. "Indian IT missed reinvesting cash flows into new disruptions over the last decade. Large companies may struggle to pivot fully, but smaller companies could emerge with a stronger AI focus," he observed. This dynamic creates a competitive advantage for agile midcap players who can more effectively integrate AI capabilities into their service offerings.

Capital Markets and Non-Lending Strategies

Tibrewal highlighted the strong performance of capital market-focused businesses, particularly non-lending financial services. He emphasized that asset management companies, depositories, exchanges, and distribution platforms have demonstrated resilience and growth potential.

Key capital market opportunities include:

• Asset Management Companies (AMCs)
• Depositories and exchanges
• Distribution platforms
• Market infrastructure providers

"Non-lending plays like AMCs, depositories, exchanges, and distribution platforms have done well. Some showed strong numbers this quarter despite limited mark-to-market gains," Tibrewal noted, projecting continued benefits over a three to five-year horizon.

Private Banking Recovery Outlook

The investment expert expressed a positive bias toward private banking, citing fundamental improvements in sector dynamics. "We have a positive bias. NIM contraction is behind us. FY27 could see private banks grow 20%. This year is consolidation, but earnings growth should resume as deposits get repriced," Tibrewal stated.

Hard Assets and Commodity Dynamics

Tibrewal maintains a bullish stance on hard assets, driven by global supply constraints and geopolitical factors. He emphasized the strategic importance of commodities in the current environment, noting that "Commodities are now geopolitical tools, with supply concentrated in few countries."

The investment manager provided a striking perspective on copper demand, stating that "copper demand over the next 18 years could match what was mined in 10,000 years." This supply-demand imbalance extends to other metals including aluminum, supporting long-term price stability and growth prospects.

Market Breadth and Recovery Prospects

Despite sectoral optimism, Tibrewal acknowledged current market challenges, particularly regarding breadth and index performance. "Small and midcaps have been in hibernation for 15–16 months. NSE 500 is near highs, but breadth is weak," he observed.

However, he projects improvement driven by earnings growth across key sectors. "Next year, earnings growth should move into double digits, led by banking, autos, and power, which could push markets higher. FII buying resuming would help sentiment," Tibrewal concluded.

Tibrewal's analysis suggests a differentiated approach to Indian markets, where midcap IT companies, private banks, and hard assets offer distinct advantages over traditional largecap strategies, supported by structural changes in technology adoption, financial sector dynamics, and global commodity markets.

The next wave of India's wealth-creating companies is expected to emerge from steady, long-term growth rather than flashy market events, according to Pankaj Tibrewal, founder and CIO of IKIGAI. In his latest newsletter, Tibrewal outlined the key characteristics that have defined India's and the world's 100-bagger companies—stocks that have multiplied 100 times or more.

"Most people think great investing is about spotting the next big event, but the biggest fortunes in the stock market were built in a far quieter way," Tibrewal wrote. He emphasized that extraordinary returns come from owning ordinary-looking businesses that quietly compound year after year.

India's 100-Bagger Success Story

India has already produced more 100-baggers over the past 25 years than the United States and China combined. Notable examples include:

Key Characteristics of 100-Bagger Companies

Small Beginnings in Large Markets

A defining trait of 100-baggers is starting small in industries with massive potential. Bajaj Finance exemplifies this principle—it held just 0.10% of India's consumer credit market in FY08 and today controls only 2.30% despite becoming one of the country's largest financial institutions.

"The opportunity never ran out and that is what allowed it to grow steadily for decades," Tibrewal explained.

Similarly, Titan began as a watch company before expanding into jewelry, eyewear, wearables, and luxury products. Pidilite built a household brand in adhesives and sealants, while Shree Cement leveraged operational efficiency to dominate India's cement sector.

Earnings-Driven Growth

Tibrewal emphasized that long-term wealth creation depends on profits rather than short-term market headlines. "Earnings do the real work. The market reacts to news in the short term, but over time, steady growth wins," he noted. "Some years were great, some years were bad—but the long-term direction was always up."

High Returns and Reinvestment Capability

Another critical feature is the ability to reinvest profits at high returns. Companies like TVS Motor and Torrent Pharma reinvested earnings into new product lines, markets, and technologies, generating compounding growth.

"If a company earns 20% on every rupee it invests, and can keep finding ways to invest more, its value grows very fast," Tibrewal explained.

Founder Leadership and Long-Term Thinking

Founder involvement proves critical to long-term value creation. Companies led by their founders or owner-operators tend to think in decades rather than quarters. "Founder-led companies make disciplined decisions and think long term. That is what helps compounding survive," Tibrewal observed.

Durable Competitive Advantages

Strong competitive moats protect profits and ensure sustained growth. These advantages include:

• Strong brands: Titan, Pidilite
• Cost leadership: Shree Cement
• Distribution networks and data analytics: Bajaj Finance
• Niche leadership positions: Balkrishna Industries

"These advantages allow companies to reinvest at high returns even when competition intensifies," Tibrewal wrote.

Global Examples Follow Same Blueprint

The same principles apply globally. Tibrewal cited Amazon's evolution from online bookstore to cloud and e-commerce giant, Apple's compounding despite multiple 50%-plus drawdowns, and Alphabet's reinvestment of profits into YouTube, Cloud, Maps, and AI.

Even Monster Beverage grew steadily through strong branding and an asset-light model, while Netflix transformed from DVD rental business to streaming leader.

IKIGAI's Portfolio Strategy

IKIGAI applies these principles to its investment approach, focusing on companies with specific characteristics:

Tibrewal cautioned that even extraordinary companies test investor patience. Apple experienced three crashes exceeding 50%, NVIDIA fell 75% twice, and Amazon collapsed nearly 90% during the dot-com crash.

"The stock market does not reward intelligence alone. It rewards patience, resilience, and the ability to stay invested when it feels hardest," he concluded.