ETMarkets PMS Talk: Karan Aggarwal on India’s 10-year wealth themes - Banks, infra & financial inclusion to lead

In this occurrence of ETMarkets PMS Talk, we talk with Karan Aggarwal, Co-Founder and CIO astatine Elever, a quant-based PMS, who shares his insights connected India’s evolving concern scenery and the factors shaping semipermanent wealth creation.

As India navigates global volatility and prepares for its adjacent growth cycle, Aggarwal identifies banks, infrastructure, and financial inclusion arsenic the cardinal pillars that volition thrust the country’s wealthiness communicative implicit the adjacent decade.

From the tactical occurrence of the Elever FactorShields Fund, which delivered 20% returns successful FY25, to crisp views connected the US-led macro shifts and assemblage rotation strategies, Aggarwal outlines however investors tin align portfolios for stableness and semipermanent alpha. Edited Excerpts –

Q) Thanks for taking the clip out. Please instrumentality america done the show of Elever FactorShields Fund for FY25?
A) EleverShields has delivered astir 20% successful full returns implicit FY 2025 portion benchmark has delivered astir 11% during the aforesaid period.

We are successful marketplace correction since Sep 2024 and EleverShields has delivered losses of astir 7% during aforesaid play vis-à-vis losses of astir 11% for the benchmark. Strategy outperformed benchmark successful 7 retired of 12 months.

Maximum underperformance of astir 2% came successful period of EP 2024, a period marked with utmost bullish movement.

Q) How overmuch wealthiness would person been generated if idiosyncratic would person invested Rs 50 lakh astatine the opening of FY25?
A) 20% returns construe to gains of INR 10 Lakhs connected concern of INR 50 Lakhs. In this hypothetical scenario, capitalist would person sitting astatine corpus of INR 60 Lakhs.

Q) What is the superior concern strategy of Elever FactorShields, and however does it purpose to heighten risk-adjusted returns?
A) Elever FactorShields provides tactical vulnerability to comparatively low-risk factors specified arsenic debased volatility, dividend, quality, and value, with 100% allocation restricted to the apical 200 companies listed connected the NSE (midcap and large-cap space).

Portfolio gathering involves a two-step process. In the archetypal step, idiosyncratic origin portfolios are constructed astir aggregate factors with the extremity of alpha maximization. Each of these origin portfolios is designed to outperform the broader markets implicit a holding play of 10-15 years.

However, determination is important divergence successful the alpha behaviour of antithetic factors. For example, alpha enlargement for the debased volatility and dividend factors is typically maximized during bearish marketplace conditions, portion alpha for the momentum origin is maximized during bullish marketplace conditions.
On the different hand, factors similar prime supply accordant but comparatively little alpha crossed marketplace conditions. Essentially, each origin has its ain hazard illustration and alpha cycle.

The strategy improves risk-adjusted returns by rotating crossed alpha-maximizing factors successful enactment with marketplace cycles.

Through a tactical rotation model, a marketplace telephone is made, and based connected that call, suitable origin portfolios are selected to physique the last portfolio. In a nutshell, the strategy is simply a "fund of origin portfolios."

In FactorShields, vulnerability is restricted to low-risk factors similar debased volatility and dividend during bearish phases. During marketplace consolidation oregon bullish phases, the allocation is accrued to moderate-risk factors specified arsenic prime and value.

The strategy is designed to present low-risk alpha to investors with a mean hazard profile, without vulnerability to high-risk factors oregon stocks extracurricular the apical 200 stocks connected the NSE.

Q) What is your instrumentality connected the markets arsenic we participate FY26?
A) We are looking astatine the extremity of the astir half-century presumption quo wherever the US was printing currency and buying goods and services from different countries portion beneficiary countries were providing a portion of net backmost to the US authorities successful the signifier of debt.

With indebtedness astir quadrupling since 2008 GFC and involvement payments astatine astir US$ 1.5 Trillion, this economical exemplary is mode past its expiry date.

The US is expected to opt for ‘voluntary recession’ successful the adjacent 12 months to navigate the biggest indebtedness restructuring workout successful quality past and it would make aggregate ‘volatility ripple’ events (we person already seen tariff tantrums) passim FY 26.

It tin person multiple-degree impacts connected the Indian system arsenic the IT assemblage is 1 of the largest sources of white-collar employment with secondary antagonistic impacts connected existent property sectors of dollar cities specified arsenic Gurgaon/Bangalore and municipality consumption.

Having said that, comparative underperformance of India vis-à-vis planetary peers successful past 6 months of FY 25 has placed it favourably connected method charts successful FY 26 and we expect Nifty 50 respect bottommost of 21,300-21,800 during planetary volatility events with sustainable betterment expected from June-July onwards connected the backmost of USD depreciation, debased ostentation and FII rotation distant from US.

We person seen immoderate proactive steps from the government/RBI to antagonistic planetary headwinds with fund taxation incentives, RBI complaint cuts/liquidity boosters and a imaginable Indo-US commercialized deal.

Though, we expect the Nifty 50 to marque a caller precocious by Diwali 2025, the trajectory of markets would beryllium mostly decided by the effectiveness of aforementioned initiatives successful neutralizing adverse interaction of planetary disturbances.

Q) Which sectors are looking charismatic for the mean to agelong term?
A) In the medium-term, user staples and powerfulness utilities look bully arsenic they are driven by home request and mostly protected against request fluctuations.

With agrarian depletion successful India increasing astatine astir 2x vis-à-vis municipality consumption, sectors linked to agrarian themes specified arsenic seeds and fertilizers besides look to beryllium a decent stake for the adjacent fewer years.

If 1 is looking beyond the adjacent 2 years, Banks and NBFCs basal retired arsenic the slope recognition to GDP ratio for India is 1 of the lowest among G20 economies.

As India is expected to go a middle-income state successful the adjacent 15 years, fiscal inclusion would drawback up with different EM peers and these sectors would beryllium earthy beneficiaries.

Infra is different 10-year communicative arsenic India looks to screen the infrastructure spread with China implicit adjacent decade. However, valuations are rather frothy successful galore sectors contempt caller corrections.

Q) Have you tweaked your strategy to antagonistic tariff related volatility successful the system?
A) We person been expecting a US volatility spike successful April 2025 for the past 6 months. Our models were already showing a partial currency telephone since Sep 2024 and the March rally gave america an accidental to lighten the portfolio gradually with astir 60% currency positions by March-end.

Strategy captured planetary volatility spikes and triggered hazard rotation successful 1st week of April and we gradually shifted positions to low-risk factors portion deploying the currency strategically to leverage the dips. We inactive person capable currency connected books to leverage expected dips successful archetypal 15 days of May 2025.

Q) Can you picture the 'low-volatility anomaly' arsenic mentioned successful the information sheet, and however does Elever FactorShields utilize this concept?
A) Typically, each investments travel a modular regularisation successful the semipermanent – ‘High Risk High return, Low Risk Low Return’.

For example, savings instrumentality 4% arsenic it is zero-risk portion FD springiness 6%-8% arsenic it comes with liquidity risk, Similarly, AAA-rated authorities bonds supply returns of 8%-9% portion low-credit bonds supply returns of 12%-13% arsenic determination is default hazard with low-credit bonds.

Academically, low-volatility stocks are expected to underperform wide benchmarks to relationship for little hazard associated with them.

However, studies crossed planetary markets uncover that successful the existent world, debased volatility stocks thin to outperform wide benchmarks arsenic affirmative alpha during carnivore markets is ample capable to compensate for antagonistic alpha during bullish phase. This anomaly is globally known arsenic ‘low volatility anomaly’.

FactorShields improvise connected low-volatility anomaly by striving to maximize affirmative alpha during carnivore marketplace portion maintaining zero oregon somewhat affirmative alpha during bullish phase, frankincense enhancing low-risk alpha for investors.

Q) What are the main steps progressive successful the methodology of Elever FactorShields for selecting stocks?
A) Factorshields starts with apical 200 companies listed connected NSE. These stocks person to walk an inversibility filter which sets criteria astir marketplace cap, liquidity and escaped float.

Using pre-defined origin scoring rules, filtered companies are ranked connected assorted factors specified arsenic quality, value, volatility, dividend, alpha, momentum.

Based connected pre-set information enactment and weighing rules astir origin scores, origin portfolios are built. Some of the portfolios are a operation of 2 oregon much factors and sector/size constraints would besides beryllium portion of the information enactment process.

Each of these portfolios are managed independently and travel antithetic reappraisal schedules.

As the adjacent step, based connected output from our proprietary tactical model, a determination is made connected which origin portfolios person to beryllium selected and however overmuch value has to beryllium allocated to each of the selected portfolios which leads to instauration of the ‘Fund of origin portfolios’.

In Factorshields, origin portfolios covering debased volatility, dividend, prime and worth are considered for selection.

Q) What astir risk? How bash you negociate it?
A) If we look astatine backmost tested data, during 2008 GFC, Nifty 50 went down by astir 63% from its 2007 highest portion EleverShields chopped the losses to 32%.

Coming to unrecorded information since Oct 2024, portion benchmark has mislaid 9%-10% till Mar 2025, EleverShields restricted the losses to 4%-5%. We would not accidental that hazard is wholly eliminated but based connected data, it tin reason that hazard has been little than modular equity products successful the market.

Risk absorption successful EleverShields comes successful aggregate layers. First of all, little systematic hazard with vulnerability restricted to low-to-moderate hazard factors.

Unsystematic hazard is besides rather constricted with vulnerability constricted to apical 200 companies connected NSE. At exemplary level, tactical models supply insights connected origin enactment to optimize hazard allocation successful enactment with marketplace conditions.

Additionally, determination are 2 approaches to negociate equity risk. Tactical exemplary provides currency calls which bespeak simplification of equity vulnerability during precocious volatility periods oregon periods prone to equity correction.

Also, strategically, agelong positions successful scale enactment options are besides taken to explicitly hedge marketplace risk.

(Disclaimer: Recommendations, suggestions, views, and opinions fixed by experts are their own. These bash not correspond the views of the Economic Times)