Senior Fund Manager Rajat Chandak Says Quality Businesses Will Continue to Outperform as India's Earnings Growth Broadens Across Sectors

India's equity markets have staged a steady recovery despite ongoing global uncertainties, with corporate earnings remaining resilient and investor confidence gradually improving. Against this backdrop, Rajat Chandak, Senior Fund Manager at ICICI Prudential Asset Management Company (AMC), believes long-term investors should focus on businesses with strong fundamentals rather than chasing short-term market trends.

According to Chandak, while market volatility driven by crude oil prices, geopolitical tensions, and global economic developments is likely to continue, India's long-term growth story remains intact. He identifies software, precision engineering, and the wires & cables sector as some of the most promising investment themes, supported by attractive valuations, structural demand drivers, and healthy earnings visibility.

His comments come after a largely encouraging first-quarter earnings season, where companies across multiple sectors delivered better-than-expected operational performance, reinforcing confidence in India's economic outlook.

Quality Businesses Should Drive Investment Decisions

One of Chandak's strongest messages for investors is that investment decisions should not be based solely on sectoral preferences.

He believes that even within attractive industries, only companies with sustainable competitive advantages, efficient management teams, healthy balance sheets, and consistent execution are likely to generate superior long-term returns.

Instead of trying to predict short-term sector rotation, investors should evaluate businesses based on:

• Earnings consistency

• Cash flow generation

• Return on capital employed

• Corporate governance

• Balance sheet strength

• Long-term scalability

This disciplined stock-picking approach has historically delivered superior returns across different market cycles.

Software Sector Offers Attractive Valuation Opportunity

Among the sectors highlighted by Chandak, software and information technology (IT) remain one of the most compelling investment opportunities.

After experiencing a period of slower global technology spending and valuation correction, several leading software companies are now trading at valuations that appear attractive relative to their long-term earnings potential.

The sector continues to benefit from powerful structural trends, including:

• Artificial Intelligence (AI)

• Cloud computing

• Digital transformation

• Cybersecurity investments

• Enterprise automation

• Data analytics

• Software modernization

As global corporations gradually increase technology spending, Indian IT companies are expected to benefit from improving demand, particularly in high-value digital services.

Precision Engineering Positioned for Long-Term Growth

Chandak also remains optimistic about precision engineering companies, particularly those involved in manufacturing specialized industrial components for global markets.

India is emerging as an increasingly important manufacturing hub due to:

• Global supply chain diversification

• China-plus-one manufacturing strategies

• Government's Make in India initiative

• Production Linked Incentive (PLI) schemes

• Growing export opportunities

Companies producing precision components for aerospace, defence, industrial automation, renewable energy, and advanced manufacturing are expected to witness sustained growth over the coming years.

India's engineering exports have also continued to expand, creating additional long-term opportunities for well-managed manufacturers.

Wires & Cables Sector Continues to Benefit from Infrastructure Push

Another sector identified as attractive is wires and cables, which continues to enjoy strong structural demand.

The industry is benefiting from multiple long-term growth drivers, including:

• Power transmission expansion

• Renewable energy projects

• Urban infrastructure development

• Smart cities initiatives

• Housing construction

• Industrial capital expenditure

• Data centre investments

The government's continued emphasis on infrastructure development and electrification is expected to support sustained growth for organized players in the sector.

Companies with established brands, efficient distribution networks, and strong manufacturing capabilities are likely to remain key beneficiaries.

Crude Oil Volatility Requires Monitoring

Discussing crude oil prices, Chandak believes investors should avoid drawing premature conclusions from short-term price movements.

Recent geopolitical tensions temporarily pushed oil prices higher before easing as global developments stabilized.

According to him, while sectors such as oil & gas may experience a more immediate impact, the broader corporate earnings outlook for FY27 remains largely unaffected at present.

Moderate inflation, he added, often reflects healthy economic demand and should not necessarily be viewed as negative for overall market performance.

However, investors should continue monitoring developments in global energy markets as they remain an important macroeconomic variable.

Corporate Earnings Remain Broad-Based

The recently concluded first-quarter earnings season indicates that India's earnings growth is becoming increasingly diversified.

While financial services continue to contribute significantly to overall corporate profits, several other sectors have also reported encouraging performance.

Strong earnings momentum has been observed across:

• Information Technology

• Manufacturing

• Capital Goods

• Industrial Engineering

• Consumer Businesses

• Selected Export-Oriented Companies

The broad-based nature of earnings growth reflects improving business activity across the Indian economy.

Large Caps, Mid Caps and Small Caps All Offer Opportunities

Rather than favouring any single market capitalization segment, Chandak advocates a balanced investment approach.

Although mid-cap and small-cap companies have delivered stronger earnings growth in recent quarters, many large-cap businesses continue to offer attractive long-term investment opportunities.

According to him, investors should focus on:

• Business quality

• Competitive positioning

• Sustainable earnings growth

• Management execution

• Financial strength

instead of making investment decisions purely based on company size.

This approach allows portfolios to remain resilient across changing market conditions.

Auto Sector Remains Attractive

Chandak also expressed optimism regarding India's automobile sector.

Although manufacturers have experienced margin pressure due to elevated raw material costs over recent quarters, commodity price stabilization is expected to improve profitability going forward.

Rather than preferring a specific segment such as passenger vehicles or commercial vehicles, he believes opportunities exist across the broader automotive ecosystem.

Particularly attractive areas include:

• Auto component manufacturers

• Export-oriented ancillary companies

• EV supply chain participants

• Specialized engineering businesses

India's long-term vehicle demand and increasing localization continue to support the sector's growth prospects.

Investment Discipline Drives Long-Term Performance

Discussing the performance of the ICICI Prudential Flexicap Fund, Chandak attributed its long-term success to disciplined portfolio management.

According to him, the fund's investment strategy focuses on:

• High-conviction stock selection

• Long investment horizons

• Low portfolio turnover

• Active management

• Identifying emerging opportunities

• Allowing businesses sufficient time to compound earnings

Rather than reacting to short-term market volatility, the fund emphasizes patience and fundamental research.

This disciplined approach has contributed significantly to its long-term outperformance.

Retail Investors Should Avoid Common Mistakes

With retail participation in Indian equity markets continuing to rise, Chandak cautioned first-time investors against making emotionally driven investment decisions.

Common mistakes include:

• Chasing recent market winners

• Attempting short-term market timing

• Reacting to temporary corrections

• Ignoring company fundamentals

• Following market momentum blindly

He emphasized that equity investing should always be viewed as a long-term wealth creation journey rather than a vehicle for quick gains.

Temporary market corrections, he noted, are a normal part of investing and should not discourage disciplined investors.

Cash Allocation Reflects Confidence

Chandak stated that the fund generally maintains a cash allocation of 2% to 4%, primarily to meet liquidity requirements rather than for tactical market timing.

The relatively low cash position reflects continued confidence in India's equity markets and the availability of attractive investment opportunities across multiple sectors.

Outlook

Despite periodic market volatility arising from global geopolitical developments and commodity price fluctuations, India's long-term investment outlook remains constructive. Broad-based corporate earnings growth, improving economic activity, government-led infrastructure spending, and structural reforms continue to support the country's growth trajectory.

According to Rajat Chandak, investors should remain focused on fundamentally strong businesses capable of generating sustainable earnings over multiple years. Sectors such as software, precision engineering, and wires & cables appear particularly well-positioned to benefit from India's ongoing economic transformation, making them attractive areas for long-term investors seeking consistent wealth creation rather than short-term market gains.