India capex cycle to rely on earnings over valuations, TCG AMC says
A 28.6% six-month rally in India's capital expenditure sector is shifting from valuation expansion to sustainable earnings growth, signalling a more durable investment cycle for market participants.
The TCG India Investment Opportunities Portfolio returned 28.6% over the past six months, but the fund's managers expect future gains to look markedly different. While the recent surge was partly driven by multiple expansion, the firm projects that returns going forward will be "increasingly earnings-led rather than valuation-led."
This transition is the core metric for investors assessing whether India's infrastructure rally has substance. Consensus estimates currently project a roughly 27% compound annual growth rate for the portfolio's earnings from fiscal years 2026 through 2029. The fund attributes this trajectory to strong order books, improving capacity utilisation and multi-year revenue visibility across its holdings.
Market observers have noted the portfolio's roughly 26% allocation to capital goods, alongside construction and utility exposure, raising concerns about concentrated risk if the broader investment cycle weakens. TCG AMC counters that the current environment is structurally distinct from previous capex booms, which relied heavily on thermal power generation and real estate.
The firm argues that while its targeted sectors—energy transition, digital infrastructure, defence, manufacturing and urban mobility—all require capital expenditure, their underlying earnings cycles are largely uncorrelated. Energy security investments follow a different trajectory than defence spending, which operates independently of digital infrastructure upgrades. This diversification of earnings drivers is designed to provide portfolio resilience against a broad sectoral correction.
The power transmission and distribution theme highlights this long-term structural demand. Modernising the grid to handle intermittent renewable energy and connect dispersed generation sites to consumption centres necessitates sustained investment. TCG AMC notes the opportunity extends well beyond a handful of utilities, though stock selection becomes increasingly critical given current valuations.
Despite the broad re-rating of Indian infrastructure equities, the fund maintains that valuations must be weighed against multi-year growth potential. Earnings still have room to surprise on the upside through operating leverage and improved execution. "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."
Regarding the evolving Indian fund management landscape, TCG AMC views newer Specialised Investment Funds as complementary to Category III Alternative Investment Funds. The firm argues the products serve distinct investor needs based on varying risk appetites and horizons, rather than competing directly for the same capital.
