Entero Healthcare has grown revenue at an impressive 30% p.a. over the past 5 years, with PAT growing at ~57% p.a. over the same 5-year period. As of March 2026, the business is at revenue of 6,600 Cr and PAT of 146 Cr. A cursory look at the financials reveals a few important points –

· Gross Margin profile of 9-10%

· Operating Margin profile of 4-5%

· Working capital at approx. 15-18% of annual revenue

· Negative operating cash flow until FY25, with FY26 printing 33% of EBITD as OCF

· Multiple acquisitions through FY25 and FY26

What is the competitive landscape in pharma distribution?

Entero Healthcare, Keimed (Apollo Hospitals group) and API Holdings (Pharmeasy) are the top 3 pharma distributors in India along with a long tail of organized and unorganized players. It is interesting to note that very few have national level reach and scale, most pharma distributors (like in most other sectors) are regional players that service a local network of pharmacy stores and manage fulfilment and supply chain.

Why do pharma distributors exist? For the same reasons as applicable to other sectors – bulk breaking and last mile logistics & fulfilment management, reluctance of the OEMs to deal with a long tail of organized & unorganized pharmacy stores, financial controllership determined corporate guidelines of minimizing credit risk and many other reasons.

What parallels can one study to evaluate Entero Healthcare?

Firstly, one should study the pharma distribution landscape in mature markets like the US. Over there, 3 players dominate more than 85% of the market after a heavy bout of consolidation in the early part of the 2010-20 decade. Pharma investors in India who made merry in the 2011-15 period would surely recollect the ripples of this consolidation on the fortunes and numbers of the India based formulation players. Post this pricing degrowth in the P&L and valuation multiple compression became common buzzwords in the investing community. The emergence of concentrated buying centers in a sector is never good for the fortunes of the OEMs who sell through them. But the consolidation of pharma distributors should drill home the point that consolidation could well happen in India too over time.

Secondly, one should study parallels in other sectors like IT and investments in India. The thing is India doesn’t have too many pureplay distributors that are listed. But it is always a useful exercise to study these limited listed players

· IT Distribution – A four horse race between Redington Ltd, Ingram Micro, Rashi Peripherals & Savex Technologies. These four players control > 85% of the market in India. The largest listed player Redington Ltd usually trades at a TTM PE multiple of 13-15x. Not a very encouraging number!

· Wealth Management – This is a non-obvious parallel but every wealth manager is a distributor of some sort. The asset managers want to primarily focus on managing portfolios well while running a channel sales approach to growing the business. Wealth managers focus on understanding and fulfilling a particular client’s financial needs, their primary work is product selection and asset allocation. The unit of measurement for an AMC is the portfolio while the unit of measurement of a wealth manager is a client. The largest listed wealth manager in the country, 360 One Wealth has traded at 28-35x TTM PE

Why such a huge difference in the valuation multiple of Redington Ltd and 360 One Wealth?

· IT Distribution is already organized while wealth management isn’t. Hence large wealth managers have a long growth runway where they can grow at a faster pace than the underlying industry. No such possibility exists for an IT distributor

· A wealth manager doesn’t have to deal with inventory or receivables, an easy business that way. An IT distributor needs to manage working capital and collections really well. Redington carries substantial debt on the balance sheet while the average wealth manager doesn’t

· Wealth management is an asset light model that needs minimal capex to grow. IT distribution needs capital

There are some others too but these primarily explain the valuation multiple difference. It is important that we get the broad thought process right rather than sweat the minute details.

Entero Healthcare has some characteristics of both these. It needs capital to grow while having a very long growth runway in India. It also shares one very interesting qualitative parallel with the wealth management industry in India – the reluctance of the next generation to take over the family business. Wealth management and pharma distribution are grunt work businesses, the business owner needs to handle multiple small to medium-size clients and fulfil their needs. It is common to see wealth managers who have built up to manage a 600-800 Cr AUM book over 20 years after painstaking work. But the next generation isn’t interested in doing client management and client servicing across 80-100 accounts. The next generation is more interesting in investing and technology – the sexy professions as opposed to the boring legacy businesses their fathers ran. This is a very underappreciated qualitative aspect of why consolidation is imperative in these sectors.

Hence a view on the business needs to be nuanced and take into account a lot of factors bottom up – growth rate, growth capital needed and the mode of funding this growth capital.

Our view on Entero Healthcare

Last year we spent some time researching this business, you can read our business research note here - Entero Healthcare research report

To summarize our key observations –

· A large player in a market that is very amenable to consolidation. Not necessarily due to a right to win, but because of the ability of larger players to acquire regional ones over time. Access to capital by itself is a differentiator as of today

· Growth rate that can exceed the growth of the underlying IPM market even in an organic sense due to the ability to organize fulfilment data, give visibility to secondary sales to the manufacturer, improve fill rates and get the most out of the logistics infrastructure. Inorganic growth adds the 8-10% p.a. kicker when done well

· Gross Margin expansion possible over time by foraying into high margin categories (medical equipment) that will translate into better operating margin due to restructuring and cost optimization within the acquired companies

· Margin improvement by 50bps from the current 400-450 bps can be a 15%+ is a kicker to the operating cash flow by itself. For a low margin business that sources from large manufacturers, optimizing margin is relatively easier compared to getting better working capital terms.

So far, so good.

But our eventual decision was to sit by the sidelines rather than take a position.

Why did we choose not to invest right now?

We will bucket the reasons into two categories – first one specific to the business, second one specific to us at Congruence Advisers

Why did we not invest? Reasons specific to Entero Healthcare

These were the most important ones, and most of them are qualitative

· We would have loved Entero Healthcare if they were more organic growth driven than they are today. Having a well-established right to win (the way APL Apollo became the leader in the steel pipes sector) is our preferred business growth template. You acquire only when you cannot easily displace the incumbent. Having run an operating P&L for more than 10 years, we may be biased in this aspect but this is what we believe.

· M&A engines are easy to talk about but tough to execute. Acquiring a number of smaller, regional distributors and integrating them into your way of doing things cannot be easy. Every SME business family in India runs their business in their own way. It is not easy to standardize the way or working post-acquisition without friction. One should expect to see a 20-25% failure rate over 5 years. Integration even in a white-collar environment like wealth management is never easy, some clients will just move away since they don’t like the new way of dealing with a service provider.

· We could see that operating cash flow would turn positive in FY26, but the question was always “will it be enough?”. To deliver 25% growth, the current template needs 10% growth from M&A. At current scale of 6,500 Cr revenue, the incremental 650 Cr p.a needs to come from acquisitions. At an average acquisition multiple of 0.5x Price to Sales, the business will need to spend ~325 Cr to generate this 650 Cr revenue. Operating cash flow generation to that extent based on margin expansion alone will need operating margin to spike by 150-200 bps from the current level. Very unlikely. Hence the business will need to fund M&A through external capital. As of FY26, the business was just coming off an IPO and had cash on books. But if you peep 12-18 months into the future, the same old problem of “not enough organic cash generation to fund M&A that can meet the growth imperative” would persist to some extent

When we had taken a look at Entero Healthcare, the market was pricing the business at > 1.3x Price to Sales and the management was guiding for 25-30% p.a. revenue growth driven by a continuous M&A model.

Now the thing is that M&A (funded by the equity dilution route) can succeed so long as the difference in valuation multiple between the acquiring business and the acquiree business is large. Ideally, I want to trade at 1.2x Price to Sales and acquire businesses at 0.4-0.5x Price to Sales. But market valuation is a fuzzy concept and more importantly a cyclical one. A market downturn in small caps can easily beat down the Price to Sales multiple of Entero Healthcare to 0.8x Price to Sales, that doesn’t just reduce my return as a shareholder but also compromises Entero Healthcare’s ability to keep the M&A tap running. A regional player may happen to give his business off to Entero at 0.5x Price to Sales but may not want to sell at 0.3x Price to Sales. If M&A is a crucial part of the growth template, we want it to be driven by organic cash flows and not through external capital that is subject to the vagaries of small cap valuation in India. This just did not make intuitive sense to.

The other clinching factor was that this business will suffer from an interesting paradox. Anytime the management team could signal slower M&A with a focus on consolidation, but that would effectively guide a lower growth rate over the next 2 years to investors who are expecting 25-30% p.a. growth rate. Which implies that a signal of fiscal prudence by the management may have the effect of a lower valuation multiple for a couple of years.

Our final view (business specific) was that the management would be better off biting the bullet, going light on M&A for couple of years and build an organic war chest first rather than going in for a fund raise soon. This would have the effect of bringing down the Price to Sales multiple from the high of 1.4x Price to Sales but would be good for the long term. Just focus on delivering 15-20% revenue growth for a couple of years, improve margins to the extent possible and show robust, organic operating cash flow generation.

In the Q1 FY27 earnings call, the management has signalled the FY27 will be a year of consolidation rather than M&A for the business.

Why did we not invest? Reasons not linked to Entero Healthcare

Entero Healthcare offers this specific combination – high growth business with a long growth runway, but at sub optimal cash flow generation that may necessitate regular fund raising to sustain the growth.

At Congruence Advisers we run Flexicap research and Emerging Business focused research offerings. The Emerging Business offering is small cap heavy, Entero Healthcare would have been the right fit there. We are a bit obsessed about balance in the mix of businesses we choose – they have to be diversified across sectors and styles to minimize the risks inherent in small cap investing in India.

The challenge that we had in terms of slotting in Entero Healthcare in to the business mix was that we already had a few businesses that offered this exact same combination. We already an EMS player and a contract manufacturer. We had to eventually choose between Entero Healthcare and an emerging value-added downstream steel player; we finally went with the latter due to the lower M&A risk and a faster scale up in the margin profile. It would have been irresponsible to add another business with the same template and increase the risk of the overall business mix

As you can see, some of these reasons have nothing to do with Entero Healthcare as a business a such. They are more a function of how the mix of businesses in our small cap offering are already in place.

Which is what investing essentially comes down to.

What makes sense to one may be out of place for another.

Entero Healthcare – Our current View

We like the management signal on consolidation being a priority for FY27 rather than continuing with aggressive M&A. This very business same template with better cash flow and a lesser reliance on external funding can be a very powerful thesis.

The stock price has recently seen a good spike after a couple of marquee funds took a position. We may choose to take a fresh look at the business once the momentum cools down. The price to sales multiple today is a more rational 1.1x rather than the optimistic 1.4x in 2024 post listing.

We will observe the following to see if a change of stance is called for -

· What can be delta in operating margin over FY27 and FY28?

· How much of this will translate into operating cash flow over FY27 and FY28?

· Can the business build a respectable acquisition capital pool through organic sources?

· What will be the failure rate of acquisitions carried out 3-4 years ago? Is the business able to fully integrate these acquisitions over FY27 and FY28 and reduce minority stake?

Even if we find the answers to these questions, we still have to figure out a way to slot Entero Healthcare into the business mix without affecting the overall balance. That will call for us to exit one of the incumbent businesses before including this. And those three incumbent businesses are executing very well through FY27.

Not yet an easy decision, but that’s how investing goes.

Disclaimer: We do not hold a position in the business as of date (Aug 29, 2026). The stock is part of our active coverage universe within small caps. This view of ours does not constitute investment advice and is NOT a recommendation to BUY/SELL/HOLD.

Congruence Advisers,

SEBI Research Analyst firmINH000019202

We don’t think investors can recollect too many 4-month periods where the absolute return on a 20-stock portfolio is > 40%. But here we are. The market has also stopped gyrating too much to the back and forth going on regarding the Strait of Hormuz. Brent crude continues to stay well below USD 90 per barrel. In the meanwhile, the Indian market has moved on to stock specific reactions rather than a broader market reaction.

If you are an investor who’s entered the Indian market only post March, you would have probably concluded by now that large caps investing is for losers. We think this phase too shall eventually pass, but for now the party is well and truly on. Going back to our June newsletter where we’d written about this being a positive alpha environment, so far it has played out as anticipated. And it does look like this will carry on for some more time until something breaks.

In this edition we’d like to take a step back and think about the current environment we are all operating in. Many things have changed in the post COVID era once the social mediafication of equity investing picked up serious pace.

The nature of the beast has changed tangibly in the past 5-6 years.

For starters, the transfer of primary ownership from the FPI to the DII is a pretty obvious trend. FPI ownership is right now the lowest we have seen for more than a decade. FPI owned large caps of the previous cycle have been the worst performers over the past 5 years.

Next, monthly SIP numbers continue to pick up pace and mutual funds are flush with cash almost every month. They have to buy something with it, very few funds are willing to stick their neck out and sit on 15% cash for a few months. They end up funneling more capital into their set of favorites, this amplifies the return differential between this set and the FPI favorites.

Then there is also the transfer of the primary knowledge source from books and printed media to social media. This is a huge one to understand and to worry about if you are a serious investor. Till 10 years ago an enthusiastic investor would start reading investing books to develop an investment philosophy. Most investors would end up reading Buffet, Lynch, Soros, Philip Fisher and the likes though they had nothing do with the Indian markets. That’s what I read when I was about to start on my serious investing journey in 17 years ago. The kind of platforms that investors take for granted today that throw the important ratios at first glance on every listed stock didn’t exist then. Retail investors without access to such platforms had to do the grunt work of reading annual reports, get information off investor presentations, listen to earnings calls with a lag on researchbytes and then do the calculations in an excel sheet. Today that kind of grunt work isn’t needed, to be fair. But the solid grounding in fundamentals and numbers that folks were forced to build in the past might not come naturally to those who started their investing journey with the platforms of today. Whatever makes your life easier can make you more fragile. When something breaks down, your lack of deep understanding of the fundamentals will come to the fore.

Investors also had to read about multiple investing styles, form an investing network and compare actual styles and results. In the process one had to take a few bullets first to see what doesn’t work, do independent thinking, some soul searching and do the mental work it takes to figure out what’s the best approach for oneself. We didn’t really have investing gurus outside of the institutional investing fraternity, and you would get to interact with them for maybe 10 mins once a year in some conference that also has 500 other folks like you. There was no visual component to this journey of figuring out one’s own style. It had to be driven off grunt work and actual experience in the market without any poster boy needling or prodding you on a daily basis. It also meant that budding investors would have to put in the effort to seek out those who were already seeing some success in the investing journey and learn from them over time.

This process of figuring out the optimal approach for oneself works very differently today. Today a budding retail investor goes on YT and gets influenced by social proof (number of followers, number of views, likes etc.) rather than by how successful the gyan giver’s own investing journey has been. Not exactly the best starting point since social proof can get created in a relatively short time today. In addition, social media platforms can also be accessed anywhere, anytime. The finfluencer of today gets a disproportionately high share of your daily time compared to what Mr. Buffet got till 15 years ago under the old set of rules. The depth of thinking and articulation that the printed medium offered cannot be replicated by the audio-visual medium of today. In an audio-visual world, what gets eyeballs is a different set of characteristics – depth of thinking and the ability to get the audience to actually think for itself take a backseat. Some of these finfluencers may turn out to be unintentional pied pipers since they are optimizing for eyeballs and not for investing outcomes.

This is one serious fragility that the regulator is trying to plug right now but it won’t be easy to fight this macro trend.

The finfluencer economy also brings another strange problem to the core. Because customer experience & UI/UX dominates online businesses today, we have platforms offering ready made “systems” and “indicators” that investors can follow to have a structured approach to investing. Surely not a bad idea for someone starting out, just that sustained investing success needs one to have the ability to also decipher the intricate workings of a system, the discipline to have a system & to follow it can only take one so far. What this trend will probably end up doing is to create a generation of investors who may not be able to figure out why and how a system stops working after a few quarters/years. A pretty dangerous possibility, if it does go that way.

It is a well appreciated view that irrational confidence gets you further in business development than rational self-doubt ever will. Anyone who has either built a set of clients offline or a loyal audience online will agree in private that displaying rational self-doubt isn’t good for business. I’ve spent more than a decade in sales and have seen this from close quarters. Long-term investing success needs rational self-doubt and constant calibration rather than high confidence in some “system” and “indicator” that is bound to run its course and eventually become useless at best & harmful at worst.

We also observe that the primary starting skill set of most investors today is technical analysis, it used to be fundamental analysis till a decade ago. At the risk of sounding snobbish, it is much tougher to make sense of financials & unit economics than to draw squiggly lines and patterns on a price chart. Mind you, we do use technical analysis but within well defined limits. Walk into any investing forum or summit today and you have bunch of folks swearing by a “technofunda” system that is more techno than funda. The fundamentals they quote ends up being stuff like PE ratio, PEG ratio, growth rate, ROCE and management guidance (that any half decent portal can throw at you in 5 seconds today). Each one of these is an outcome of how a business is run, never the starting point of good fundamental analysis.

There is also a big change underway in the institutional buy side ecosystem. Until 2018, business owners were happy holding ICICI Prudential Discovery Fund and HDFC Top 200 Fund. Within a couple of years, one could see that the finance manager working for a 20L salary was buying the same funds that the promoter was holding. The game of exclusivity until then was limited to structured products, PMS and some VC/PE/Real Estate funds. The HNI community now wanted differentiated products in plain vanilla long only equity funds too. Then came COVID which fundamentally changed a few things about wealth management in India. Until then one needed face time with prospects, else client conversion was difficult. During the COVID period of 2 years 10 Cr+ deals started getting closed over phone without even meeting the person pitching the product, provided the product sounded interesting & exclusive, with a good team managing it. The boutique PMS industry took off big time post COVID for this reason – seen through a market development lens. Seen through the investing lens, boutique PMS players were willing to fish in pockets that large institutions could not participate in and thus benefited from substantially higher returns during a good cycle.

This has unfortunately led to a kind of echo chamber where a boutique PMS today just can’t start up and raise capital with a pitch saying “we do the same old conventional equity investing, just that we are slightly better for so & so reason”. The offering needs to give the impression of being something different – momentum driven, quant driven and other factors which the mainstream asset management industry hasn’t really marketed so far. Hence most of them end up gravitating towards small & micro caps and the odd SME stock. The end effect is that some themes and stocks are full of boutique PMS players to such an extent that 2 of these 10 folks selling a lot size of 10 Cr each can bring significant impact to the price. You can see the same trend in the smallcase universe where a large player giving a buy call on a small counter sends the price going 10% higher, vice versa when selling. Of course, some of these businesses have potential and are printing good numbers too, but one can rely on capitalism to take a good thing too far.

So, what is all of this translating into for you as an investor?

· The gush of liquidity has made the headline market cycles shorter and the headline index corrections shallow. Allocating 15% of your net worth to the equity market when the NITFY 50 TTM PE falls below 18 feels like a pipe dream already

· The rise of finfluencers and their huge subscriber base, all subscribing to and trading/investing as per the same “system” and “indicator” is amplifying the natural ebbs and flows of price trends in small counters. Throw in the added effect of boutique PMS players fishing in the same waters and you amplify this by another factor. Thankfully this pool of capital isn’t big enough to move larger businesses but which retail investor today cares about large caps when small caps are netting you 5% every month?

· The phenomenon of the silent performer is becoming a thing of the past. A business grew earnings 40% YoY? There will be a thread on X and a video on YT on this business by tomorrow. Sometimes I miss the years where motivated (but ethical) investors groups would join forces, research a stock, wait for the first quarter of the thesis playing out and have enough time to load up before the price ran up too much

· In technical parlance, by the time a breakout occurs, you are already too late unless your approach is to ride the 10-15% move and cash in. PEAD gets exhausted in 2-3 sessions today. Too many investors investing based on technical analysis will make technical analysis less reliable going forward. We may already be seeing some early signs of this

· The rise of AI tools that can generate enough content for a snake oil salesman to talk about a business for 10 mins and sound knowledgeable is a real issue. Today, it is very important to cut content down to size and get down to the real nuts & bolts of a thesis when someone presents one to you. Hell, I can generate a 40-page report today within 5 mins without knowing jack shit about the business or the sector

· Core equity research is getting diluted to things like revenue growth rate, rate of change of growth & management guidance. Regurgitating objective information never was and never will be equity research, leave alone portfolio management. Quoting from the movie Margin Call – “There are three ways to succeed in this business – be smarter, be faster, cheat. And I don’t cheat”. There is excessive focus on being faster today since becoming smarter/wiser is way tougher. But that is exactly where the real big money is going to be made from here, not by having an advantage of 2 mins unless you are an algo trading firm who is playing a different game altogether.

So, what are we doing about this?

· Stay away from counters & themes that have too much positive noise. Negative noise can be a research trigger by itself, especially if the business has proven itself in previous cycles. Funny how things can be asymmetric in investing

· We are starting to have firm rules about what we will not chase, no matter how sure shot growth looks for the next 2-3 years. Whether you set the limit at 25x or 30x FY28E PAT is up to you based on your style. But do note that it will be foolish to set this limit without first doing the grunt work to estimate FY28E PAT, simple extrapolation will not do.

· Become more measured about how we will use information from the public domain, unless we get it first; which rarely happens. Resist the urge to pull the trigger based on some view you may have read or heard somewhere. The guy who actually has a differential insight surely isn’t going to post it on social media first

· Prefer stocks we already know well where the superficial valuation metrics look optically high, but the business is working towards improving the numbers that matter most to investors. In other words, we love operating leverage as a theme right now. Do go through our detailed note on this, replete with 3 real time examples

· Pay more attention to the shareholding pattern, especially tangible changes over the past 24 months. Sometimes this captures details that aren’t obvious from technical analysis

· Every significant spike and dip in a stock of interest needs to be correlated to the real business numbers so that we have a view on what the market is looking for in this business. For e.g. a stock we were researching recently spiked 30%+ when the first quarter of 15%+ operating margin came in. The same market hasn’t reacted to subsequent quarters of good OPM because the change in OPM trend got priced in. What the market is now looking for is clear evidence of revenue scalability. This may look elementary but it is easy to lose track of structured thinking when there is FOMO all around. You need to have a view on how the market is viewing the business right now and what parameters the market actually cares for

· Be wary of recent trends that have historically not been viewed favorably by the market. Today the market is cheering QIP announcements by players who have demonstrated a long growth runway. But do remember that the market is fickle enough to diss on the same QIP at a different time even if the context remains the same. For the record, we aren’t fans of frequent equity dilution, unless it is done by a lender where capital is the stock in trade

· Another elementary aspect. Translate everything into what it means for the particular business. A business turning Operating cash flow positive doesn’t mean much if the growth capital needs will continue to far outweigh the cash flow generation potential. High ROCE & cash balance accretion is welcome but it doesn’t mean much if the business has limited reinvestment opportunities

· Keep reminding ourselves that a fundamental only approach is most vulnerable at the top and that a technical only approach is most vulnerable closer to the bottom

In Investing, context is everything. The market that cheered a 10% growth, high ROCE business 5 years ago doesn’t want to buy it at half the valuation multiple today.

One of the more important things in sizing the context is to have a view on who your counterparty is when you are taking positions. If you are going up against impatient, short-term capital that wants stocks to move every week, it might be more profitable to buck the trend (at the right time) rather than to ride one. For when a positive trend breaks, it will break much more than warranted. Just as the price went up much more than warranted. Large counters that have a much broader base of liquidity may not suffer from these cycles, but small counters surely will. If you are a small cap heavy investor who doesn’t make allowance for this aspect, you are playing with fire. Just as a business that has concentrated buying centers can suffer due to destocking for a few quarters, the same can happen to your portfolio if it is overweight on just 1-2 factors, even if the portfolio is otherwise well researched.

Our next post will be on something we want to renew our focus on as the current run matures – the anti-thesis.

In other words - what are the businesses that appealed to us at first look but we eventually decided not to invest into, and for what reasons.

The choice of businesses will always have a low overlap with the NIFTY 100 (max overlap of ~20% at any point of time over the past 7 years)

While good performance is the final objective, the nuts and bolts of what goes into building a mix of resilient businesses is the more important part. Performance will be subject to cycles, but usually falls into place over a 3 year cycle

Suitable for those with time horizon > 2 years and looking to build exposure to a mix of businesses that is differentiated in construct from the headline indices

Watch our detailed video on the offering

To subscribe to the offering please visit

DIY model - https://congruenceadvisers.com/research-service/

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Congruence Advisers

SEBI Research Analyst INH000019202

Throughout the course of life, demands on our time and effort will be made by employers, employees, customers, colleagues, relationships and many other components that make up the sum total of our experience. Each one of these components have objectives that don’t necessarily match our own, inevitably leading to some shortcomings and the resultant conflicts.

A few examples

• When performance at work suffers, one has to deal with an angry boss who demands more

• When attention at home suffers, one has to deal with a spouse who feels neglected

• To get ahead in your profession, one has to beat back some colleagues who won’t give us any love thereafter

Managing each one of these components in isolation is possible, managing all of them well together, at the same time is next to impossible. Doing a good job at each one of these demands/responsibilities is a local maxima, the sum total of all these local maxima is a global maxima. The problem is that these components have complex interlinkages which aren’t necessarily additive in nature.

This global maxima equation varies from person to person, the structure of your equation might be very different from mine. A factor that is a 10% weight in your equation might be a 40% weight in mine.

You alone know how to maximize this equation for yourself. It is futile to pursue local maxima, unless one knows how this impacts the global maxima.

The problem is that very few know what their individual global maxima equation is. If you don’t know the very structure of the equation, how can you maximize it?

The devious ways of some systems and their social conditioning rest on the premise that the more they keep individuals from discovering this equation for themselves, the more these individuals’ time and effort can be harnessed into doing things that lead to a global maxima for the system.

Systems do not care about individuals, that is how they become systems. The unstated goal of any system is to keep the individual disposable while extracting the best out of the said individual. Once your utility level to the system is exhausted, the system drops you and moves on.

An example from the business world. CEO XYZ was front page news for almost a decade, the system (the organization) let the game continue as long as the weather was fine. The moment the weather turned foul, XYZ was sent packing and all the ills of the system were blamed on XYZ thereby allowing the system to cleanse away all of its passive sins.

Does the CEO not report into the Board? What is the penalty for these board members who allowed these sins through their silence?

Hush, thou shalt not ask these questions.

When Bruce Wayne becomes the Batman, it is an implicit acknowledgement of this. Anyone can become the Batman, but the Batman as a symbol has to be bigger than the individual who dons the mask and the cape. You can eliminate the individual but you cannot kill the symbol.

The king is dead, long live the king.

One possible answer….

Develop a sense of conscious self-interest that takes precedence over what the world expects of you. Does not mean that you become self-centered and do not care about others, just that you put yourself and your objectives first most of the time.

Contrary to what we believe, the pressure to meet expectations and to keep others happy keeps us from achieving our objectives many a time.

People hang around in the careers they hate not because they don’t have the guts to walk away, but because they don’t have the conviction to put their personal interest above that of their dependents.

People hang around in meaningless relationships that contribute nothing to their lives because society conditions them to believe that they are bad people if they walk out of relationships.

People get into 20-year financial liabilities (read home loans) not because they want to, but because they succumb to the subtle emotional pressure their spouse and family put them under.

Become a work horse and keep doing things you do not care about, so that someone else can sleep in peace. If you question this, you are a selfish human being. Thus, goes the narrative.

Once we spend a few minutes looking back at some of our past decisions and our true motivations for the same, this pattern will show up.

Achilles to his young cousin in the movie Troy “Don’t waste your life following some fool’s orders”.

Achilles cared most about his objectives, which were fame as the best warrior that ever lived and his legacy. He fought because he wanted to, not because his king expected him to. He did fight some battles when his fellow men needed him, but he was doing that as a favor, he wasn’t fighting out of a misplaced sense of duty. He did not care about his allegiance to any king or empire.

Conscious self-interest in its purest form. He did not owe the world anything, he also expected nothing in return. He would earn his stripes by excelling at what he did.

If you see the world through the value lens, all of this ties in pretty well.

There was a time when every well-wisher of mine indirectly told me I lacked ambition and was capable of achieving more. Little did these folks know that I was running a difference race altogether. Focusing on career growth would have meant spending a lot of time doing impression management and signing up for initiatives at work to improve my visibility. I actively shunned all of these because I wanted to invest every hour I could into becoming a better investor. A multibagger stock looked more appealing to me than a promotion. A promotion or a better job comes along once in three years but you can hit multiple home runs as an investor in the same year, and it is a replicable process that can work across cycles.

My bosses and well-wishers expected more from me but I always put my objectives above what the system expected of me.

My objective was to be independent and to enhance the amount of control I have over my own time. Not to live up to expectations, which were misplaced. I did not want to waste my time executing someone else’s vision and trade my time for money, no matter how noble that vision was.

Not caring about some local maxima played an important role in me getting closer to my global maximum. Principles of reduction work not just in investing, they work pretty well in other aspects of life too.

You could say that my global maxima equation looks superficial to you, but to each his own. Financial independence is just the beginning of many other things, not the end point by itself.

Before we look forward, it is important to look back upon how things played out through 2025. Small caps peaked out in December 2024, a good three months after the headline index peaked out in September. January and February of 2025 saw mayhem in small cap heavy portfolios; many funds fell 15-20% within 2 months before showing some semblance of stability in March. April 2025 brought with it the full brunt of the Tariff mania, businesses with high US exposure saw their market capitalization erode by more than 30% in a single month. And we had launched a small cap heavy offering in March 2025, mind you. It was trial by fire within 45 days of getting the offering off the ground.

A so-called TACO put a floor beneath stock prices and the next three months were actually fine. Then came the public US India spat that resulted in US tariffs on India rising to 50% in no time. While small caps continue to bleed by a hundred cuts, larger businesses were much more resilient in the equity market. By August 2025, it was time to strongly consider the possibility that we might be in a market phase where large caps may hold up but small caps could continue to slide much lower. While the equity market environment was challenging, we saw a monster move in precious metals that ended CY2025 with people in every nook and corner of Tier-3 India talking about just three things – Gold, Silver & Dhurandhar.

The equity market saw a brief respite for a week with the announcement of the US India trade deal framework, but that was followed by an ugly looking candle in the same week. Then started murmurs of military action in Iran, murmur turned to reality and then to panic as missiles flew in the air and spiked the price of crude oil well beyond USD 100 per barrel. We put out a short YT video on March 23^rd on why investors should not get too spooked by the narrative of Iran war → high oil price → trouble for the Indian economy → get out of the stock market while you can.

And then everything changed post March 30^th.

Why this flashback? Because it sets the context for an observation of ours.

Active equity investing when compared to the relevant benchmark has two distinct phases – POSITIVE ALPHA environment and NEGATIVE ALPHA environment. Please note that we aren’t talking of the absolute return of the market here, that can be positive, negative or flat by itself. In a negative alpha environment, it is exceedingly difficult to better the benchmark, no matter how hard you try. For a small cap investor, the phase from December 2024 to March 2026 was an environment of negative alpha.

How does one identify a NEGATIVE ALPHA environment? Simple, in this phase of the market the benchmark return beats the average mutual fund return, the average mutual fund return beats the average PMS return & the average PMS return beats the average direct equity portfolio return. Generally speaking, as a principle, not to get too precise here. No wonder direct equity investors feel like idiots in this phase.

What is different now? We believe that since April 2026 the market has pivoted to a phase of POSITIVE alpha. How do we identify this? In this phase direct equity portfolio beats PMS return, which in turn beats the MF return, which further beats the benchmark return. Once again, generally speaking. At the same time, we believe that this hasn’t been a broad based, easy market rally yet. As this POSITIVE ALPHA phase matures, we may see the average direct equity portfolio beat the benchmark rather easily. That situation is still some time away though. Even if the overall market takes a turn for the worse from here, we would still expect this phase of POSITIVE ALPHA to stay intact until the market texture pivots again. In the Indian market these cycles of POSITIVE ALPHA and NEGATIVE ALPHA have been occurring in alternating fashion over a 30–36-month cycle since 2016 now, broadly speaking.

The biggest indicator of the market texture turning from one of NEGATIVE ALPHA to one of POSITIVE ALPHA came in the March correction, the NIFTY 50 fell ~300 bps more than the SMALL CAP index. That was the clear sign that something had decisively changed in the market. For those running flexi cap portfolios, changing the portfolio mix away from large caps would have been the winning move. Easy to say this in hindsight but it would have been a brave call then given how the market had behaved through CY25. While we had added more businesses with market cap > 35,000 Cr through CY25 in our flexi cap offering, we resisted the temptation to reduce portfolio beta through the March 2026 fall. What prevented us from doing that wasn’t any great foresight but rather a simple principle we follow all the time – Resist the temptation do anything reactively; either do it proactively or don’t do it at all. We refused to sell out of some businesses no matter how bad the price action looked for months; interestingly these are the very stocks that have rewarded us with > 2x from the lows within a short span of time.

The current phase is one where investors should have a well-defined risk management framework in place, but also one where investors should bet actively. If you aren’t in the right pockets yet, it is time to calibrate to the changed market texture and try to hit the sweet spot where you have earnings visibility without having to pay up excessively for stocks. A few more thoughts on this in a minute, but you should be actively betting now. Not in an indiscriminate manner but in a calculated manner while telling yourself that the market is in a better mood to reward you with alpha than it has been for over 18 months now.

Q4 FY26 earnings season has been a pleasant surprise for us. Businesses delivered good numbers after many quarters, the weighted average EPS growth for both offerings was > 25% YoY. While news flow continued to be dominated by geopolitics, high energy costs and inflation, businesses were quietly printing good numbers through the Q4 earnings season. Of course, Q1 will see the impact of all of these dislocations but we aren’t unduly worried. Good businesses manage to ride these rough waves every now and then, and some emerge stronger from these episodes.

What we observe in the market now is that some themes are dominating investor mindshare disproportionately. No price seems to be high enough for businesses that fit into the Data Centre, AI, Power grid modernization, Defense & Precision engineering themes. While most of these businesses have excellent earnings visibility for FY27 and FY28, almost all of them are already trading at > 30x FY28E PAT. Maybe they will execute well enough to justify these multiples but there are also a few legacy businesses that are trading at < 20x FY28E PAT. One of the decisions we are grappling with right now is this – do we stick to the businesses we have tracked across cycles and know really well or do we instead play stocks within these hot themes that we haven’t played before? The problem with a hot theme is that the run starts based on reasonable assumptions but the stock price loses track of ground reality beyond a point; if one is a late-stage entrant to such a theme, there is a high probability that one loses money unless one can cut such positions quickly once the trend breaks.

Whatever we choose to do (or any hybrid mix we pick), we will continue to stay balanced in terms of allocation across sectors and themes. We would happily take a 4% p.a. alpha from a well-balanced portfolio over a 6% p.a. alpha from a portfolio that is riding only on a few themes. Call us conservative if you want to but this approach gives us the best chance of doing well across market cycles. We want our clients to be able to sleep in peace while being invested in our offerings, even if some fresh hell were to break loose somewhere else in the world right now.

One interesting data point to wrap up this edition of the newsletter.

Since the inception of the Flexicap offering (July 2019), we’ve tracked the performance relative to the benchmark every quarter. What we observe is that the offering is ahead of the benchmark 60% of the time and the average positive alpha during these phases is 5.3% for a quarterly measurement period. In the 40% of the time when the offering is behind the benchmark, the average negative alpha is -3.5%. The highest alpha we’ve clocked in a quarter till date is 15.5% (interesting this in the ongoing quarter) while the worst has been -8% in the quarter of Jan-Mar 2022.

Building differentiated portfolios comes with its own share of quarterly volatility, though the Flexicap portfolio beta over the period is ~0.85 with respect to the BSE 500 when measured on a 3-year rolling basis. This only reinforces our view that volatility is a feature of the alpha generation game. What looks like steady outperformance over a longer timeframe can look much more chaotic over shorter timeframes.

Turns out that being ahead of the benchmark just 60% of the time is enough to sustain an alpha of > 5% p.a. across ~7 years. Of course, the underlying requirement is that a few stocks should be home runs. For a stock pick to be a home run (we define this as > 3x return over our standard measurement period of 3 years), one must have the ability to sit with a business (that has the potential & also executes well) for years. One of our big regrets is selling out of Apar Industries after making a 3x within 18 months because we got excessively focused on the short term and on preserving profits; the stock would have gone on to become an 14x had we held on.

Churning too much will only reduce the probability of us hitting a home run, though an implicit takeaway from this exercise is also that we need to cut losers much more ruthlessly here on. Making that distinction between which business to give a long rope to and which business to ruthlessly prune is where investing skill comes into play. Following the quarterly numbers and management commentary is the easy part, unfortunately many are reducing investing to this kind of first level thinking.

We will continue to see the long term as a series of medium terms. Long term investing gyan is largely meaningless if the medium-term return isn’t good enough.

This is why we think investing is largely a solitary game where one can optimize only for his specific style of doing things. Steadily ironing out chinks in the armor over a decade while staying consistent with one’s core investing approach should squeeze out more alpha in the journey.

“Adapt what is useful, reject what is useless, and add what is specifically your own”

– Bruce Lee

Belief systems are so deeply ingrained into us that they influence our behavior at a sub conscious level. Which is why they are so difficult to change, if you do not even consciously know where your deep-rooted preferences come from, how can you change them?

We can see many examples of how these belief systems manifest around us

• Those who believe that money is evil rarely end up being rich.

• Those who believe people aren’t worth trusting don’t leverage human capital efficiently.

• Those who believe that relationships are a burden rarely seem to have meaningful relationships, or any relationships at all.

• Those who believe that thinking deeply about anything is an overkill are rarely decisive

• Those who believe that it is the “same shit everywhere” rarely exercise the power of conscious choice. They work the same soul crushing, mind numbing job for decades.

• Those who believe that office politics is undesirable are usually not good at it. Those who see it as a natural outcome of people competing with one another get better at it over time.

We all know a few people who are extremely talented and have the means to hop onto the next level of success but they just don’t. More often than not some self-limiting belief systems hold the person back.

I have been guilty of all of these at some or the other point of time. It is these beliefs of mine that are responsible for the situations I have had to deal with, not how good or bad a person I am. And somehow, once my belief system changed, the results changed too.

Salesmen who view customer objections as obstacles usually have a tough time closing a deal. FYI, a prospect who has objections is likely to be an interested prospect, a prospect who doesn’t care would just say “I will discuss internally and let you know” and shut you out. It took me years to figure this out, I blew many deals in the meanwhile.

Belief systems end up becoming self-fulfilling prophecies that shape our lives in ways that aren’t optimal. There is a difference between a superficial belief system and a system that one evolves into through conscious choice based on empirical observations and real-life experiences. At a high level it is difficult to tell one from the other, what matters is where the belief originates from.

As an example, those who come from a family background of working for a salary have many limiting beliefs on what it is to be on their own. I was one of those for more than a decade. I come from a family where very few have tried to deviate from the path of a regular and predictable salary, leave alone being successful on their own. But having experienced the other side of the spectrum for the past three years, I can today say that I wouldn’t go back to the other side so long as I can help it; though I haven’t seen any great success yet.

If I had expressed my opinion on this three years ago, it would have been an example of a superficial belief system that is not grounded in experience. But if I were to choose to go back to a steady salary and a corporate gig today, it is an example of a conscious choice that is based off real life experience.

Challenging these superficial belief systems is where most of self-improvement and development occur. Comfort and development rarely go together, this is not just some high-level HR talk. When they say failure and rejection are the stepping stones to success, they are spot on.

Every single successful entrepreneur out there has dealt with much more rejection than the average CEO. When Nandan Nilekani accepted the responsibility of the Aadhaar initiative, he was mocked by many. Today this initiative is driving tax filing, direct benefits transfer and even the COVID vaccination drive. Imagine being a billionaire who could have walked away into the sunset with his ego intact, how many of us would try the kind of things Nandan has tried and failed at? He deserves the respect and adulation for good reasons.

When we try things that these superficial belief systems try to keep us from doing, we usually deal with failure and rejection. But that discomfort is exactly what pushes us to get better.

Every single successful sportsperson has dealt with public failure and the occasional humiliation. Roger Federer once got thrashed 6-1, 6-3, 6-0 by Nadal in a French Open final. But he cried the most when he lost a tough five setter to Nadal in the very next Australian Open final. Failure is brutal and soul crushing but it is what teaches us best.

No one in my extended family has ever invested in the stock market. Our belief system was that the stock market is a casino where retail investors get taken for a ride. If I had accepted the superficial belief system that “we cannot be good investors”, my life would have been drastically different and most likely worse off than it is today.

What pushed me the most towards managing external capital was a chance meeting with someone who told me in clear terms that I needed to take baby steps over a period of time and test things out before making a big change. The thing is if you can have three customers, you can have ten. If you can have ten, you can as well have fifty if your model is scalable. If not for me accepting this premise and acting upon it, life would have been different today.

Many of the superficial belief systems that keep people yoked to a particular path exist as psychological buffers that protect the ego from the consequences of failure and rejection. Most of our limiting beliefs are self-imposed, the world will continue to be what it is.

Intellectual curiosity and the willingness to challenge the status quo get us much further in life than allowing ourselves to get influenced by superficial belief systems that are not grounded in real life experiences.

We need to test out everything, provided the cost of failure is not high and is something we can recover from. Fail small multiple times early on rather than failing big later on when you have no time left to do any course correction.

Investors find themselves moving from a mood of risk aversion and capital preservation to one of seeking gains. Such phases also result in what we call a “positive alpha” environment where PMS schemes usually do better than MF schemes and direct equity portfolios do better than PMS schemes. It was the other way around for the past 15 months, ever since the small cap index in India hit it’s peak in December 2024.

Now it is important to have clarity on how to go about investing, even if one has to ideally start by normalizing equity allocation before looking to generate alpha from the direct equity portfolio. Asset allocation first, alpha generation later.

For those who prefer building their own equity portfolios, our recent video might give some insights on how to go about things now

Please be structured in your approach and avoid the temptation to load up indiscriminately now. Not every stock that is up 40% YTD will continue its run.

Context is everything.

The Air France 447 disaster in 2009 demonstrates how a particular sequence of events led to the pilots crashing a perfectly functioning Airbus into the middle of the Atlantic Ocean. Read the detailed analysis (this will be worth the effort) here

Alternatively watch this video that does a good job of explaining what went wrong

TLDR version

Captain decides to fly through a storm over the equator and takes a sleep break exactly when the plane starts to hit some rough weather, because he was tired after a late night party with his girlfriend the previous night. Pilots lose airspeed indicators temporarily due to an atmospheric effect, rookie pilot panics and tries to climb above the storm as the auto pilot switches off. Plane loses speed due to the climb beyond 36,000ft and goes into an aerodynamic stall which the team cannot diagnose not recover from. Till the end they have no clue if they were falling or climbing due to panic/poor communication between the team. The aircraft literally fell like a stone for more than 4 mins (though all engines were working fine) before hitting the water. All the while the stall warning kept blaring in the cockpit which the team inexplicably never addressed. The Airbus design of the sidestick further compounded the situation and resulted in one of the worst air disasters of recent times.

Lollapalooza Effect

Flywheel Effect

Virtuous Cycle

Negative spiral

What’s the secret ingredient? Feedback loops. Without these being in place, an outcome disproportionate to a slight change in inputs is very unlikely.

We’ve all read the importance of this in the context of investing, how operating leverage can also result in financial leverage, and at the pivotal moment unlock enough resources that can result in higher market share. Thereby decimating competition and becoming the dominant player in that market.

What we sometimes fail is appreciate is the importance of these feedback loops in our daily lives, impacting aspects like health, personal relationships and overall wellness.

• The more successful you are, the easier it is to leverage other people’s effort without pissing them off. If an unknown person quotes my work without giving credit, I might get angry. But if a famous person quotes my article, I might feel flattered. Same action, but different response.

• More the number of followers you have on a social media platform, the easier it is to add more followers.

• Nobody wants to go to a restaurant that is empty. People would rather wait 15 mins to get into a restaurant that is full than dine at an empty restaurant.

• No woman wants to date a guy who does not have options. More the number of options he has, the more he radiates confidence thereby enhancing his prospects even more.

• The friendlier your body language is, higher the likelihood of you having more friends. Even dogs and children latch on to those who have self-assured but relaxed body language.

• Unless you are excited about life, your life is unlikely to be exciting.

A few examples of positive feedback loops from my own experience.

The seeds of my current writing stint were sown in 2004-05. I was a CAT aspirant then and eventually became a respected contributor on India’s largest MBA prep forum. For the next decade or so, I hardly wrote anything. In 2016 I started writing on India’s best amateur investor forum, within 3-4 months I had people reaching out to me through private messages to get to know me better. Since then, I have been one of the Top 25 contributors there, the way people responded to my posts immediately told me that they saw value. Today when I write a post here, I pretty much know my style and why people would want to read what I write.

The seeds of my current money manager stint were sown in 2014-15. That is when I started writing formal research notes for myself before investing into any stock. By 2016 I started sending these out to some institutional investors and their feedback confirmed something I always intuitively knew – that I was good enough to eventually manage money. My formal fund manager avatar fructified in 2019 through a connect I had built a relationship with in 2012, yet another small thing that paid off well after 7 years though I had never planned on it.

Feedback loops can do damage too.

No better example than what happened to Air France 447. Even if one the inputs that the pilots made that day was different/more appropriate, chances are the tragedy could have been averted. A simple question from the co-pilot asking “What input are you making with the sidestick?” could have told them what the problem was – contrasting sidestick inputs which resulted in the aircraft going into a stall.

Another one. Children who lack confidence are more likely to get bullied. Once the bullying starts, their confidence gets shattered even more and aggravates the situation. It eventually trickles down into other aspects of life and makes them miserable over a seemingly trivial matter. This does not always end well, though some recover in time and go on to lead normal lives.

What are the takeaways here?

• Try as many things as you can, get used to the idea of failing and not taking yourself too seriously. Wish I’d known this as a teenager

• Knowledge and wisdom are cumulative and their effects are non-linear. If you understand X well, you are better placed to understand Y well. At the opportune time, this can propel you forward at an impressive escape velocity

• Work on pattern recognition skills as much as possible, Benoit Mandelbrot did not write about fractals for nothing. Economies, stock prices and relationships have cycles that mimic other patterns seen in nature

• Taking the initiative matters, things rarely happen by themselves. Yet another perspective I lacked in my teens

• Read some exotic stuff from time to time. An elementary knowledge of vedic astrology has made me a better investor, I bullshit you not. Study behavioral sciences if you can, your world view will be more grounded and you will see things as they are

• Read a lot. Unless you read, you cannot write. If you cannot write, you cannot articulate

• When you find yourself in a hole, stop digging, take a step back and just focus on the fundamental variables

• The ability to break a negative cycle early on is very important, this can mean the difference between success and failure, sometimes life and death. The AF447 example proves this

Specific to investing, understand fixed income, currency and other markets well enough. While corporate earnings are what matter most to equities, these other asset classes set the operating macro context. In today’s era of money printing and fiscal handouts, the macro context is much more important than it historically has been. Don’t let anyone tell you otherwise.

The dots can connect themselves, but only if you spread your interests and skills wide enough.

The true mark of intelligence is when one can hold conflicting ideas at the same time, yet continue to function rationally. The ability to appreciate varying shades of grey is one of the surest signs of maturity. In other words, black and white thinking can be the recipe for disaster over the long run, even if it can succeed brilliantly in the short run.

In investing, pessimists rarely create wealth. They can find twenty reasons to not trust the market at any point of time. However, pessimists are best placed to avoid large drawdowns, they are the ones to get the hell out at the first sign of trouble. You run away so that you can fight another day. An asset during tough times, a liability otherwise.

This works not just in investing but in evolution too. Dinosaurs got wiped out by some large event; rats, cockroaches and bacteria did not. Hell, we can never know if all of them existed at the same time but you get the drift. Species who are best placed to survive over a long period of time are usually small, resilient and reproduce in large numbers. Species that are best placed to thrive and dominate are large, but susceptible to changes in their environment and reproduce in small numbers.

Look at military history. Greek military organized themselves into a Phalanx, a 16 by 16 structure of well-built men who held a shield in one hand and a long heavy spear in the other hand. The Phalanx formation enabled the Greek army to defeat the Persian army which was five times larger. This formation dominated the battlefield until it got defeated by the Roman legion, another unit of men with a large shield in one hand but a small sword optimized for close combat in the other. The problem was that once the Phalanx got outflanked it was toast.

Alexander believed in a decentralized army, if he fell/got injured it was just one Greek warrior out of the picture. The Persian army could not move an inch if their king got injured and could not direct action. Alexander personally led the cavalry charge and would place himself directly in the line of fire, this enabled him to read the battle as a participant and take decisive decisions. Darius would watch from far and would never fight, by the time he read the battle he had already lost since the Greek cavalry was within striking range of him. Darius’s strategy was based on numerical superiority and his ability to raise a large army through payments to allies and warrior tribes. Outflank/envelope the opposing army and overwhelm them with sheer numbers, even if his army was less skilled. Works well when things go as planned but the army becomes a slow and clumsy unit otherwise.

Iran appears to have employed a similar approach in the ongoing conflict. Spread out arsenal across 30+ command centers and you reduce the risk of the military unit getting paralyzed if the heads are taken out.

In investing scale works against you when it comes to performance. It is much easier to deliver healthy alpha on a 100 Cr portfolio than on a 10,000 Cr portfolio. Good retail investors in India should beat fund managers hands down across market cycles. Almost every good investor in my close amateur investing circle has compounded at 20%+ over the past decade. When large funds start underperforming, they rarely get back into the top Quartile again.

Good retail investors are expected to be more resilient, if one goes by nature’s laws. We can switch between being optimistic and being paranoid without caring too much about what other people think. Even if we are wrong over the immediate term, we can make up for it over the medium term.

Some amount of sub optimal positioning somehow creates resilience across domains, though it does have a cost over the short term.

Just in time inventory management works like a dream when all goes fine, but when there are disruptions in the supply chain you can be stocked out of critical parts for months. Any serious investor would have read about the China plus one approach post COVID. Globalization meant you source components/materials from where they are cheapest/best in the world, but if something disrupts life/economy in that source country you have the entire world suffering for a few months.

Globalization worked well in a peaceful world when nations could take their word at face value. With the changing world order post COVID, looks like fragilities introduced by a globalized model will bring some nations down to their knees.

Mike Tyson would go for a 3-mile run every morning at 4 AM. He was a heavyweight boxer but he knew the importance of clubbing endurance with strength and technique.

Ali frustrated Foreman for 7 rounds and took the fight to a situation where Foreman (bigger, stronger, younger) was gassed out.

In Mixed martial arts, an elite Muay Thai fighter beats an elite boxer most of the time. The boxer is trained over years to load up his legs and torque his hips for a good strike, once the Muay Thai fighter lands 3-4 low kicks on the lead leg of the boxer the fight is over.

However, if you teach the boxer how to check kicks, he knocks out the Muay Thai fighter more often than not. His size and strength advantages matter only if he is resilient against the Muay Thai kicks.

Mature investors build redundancy into their portfolios to ensure they always survive. Sometimes it means leaving some gains on the table, sometimes it means taking cash calls.

I rode the 2017 small cap frenzy all the way to the top, when the eventual reversal came in 2018 it was painful. The only way I could have reduced the impact of the 2018 draw down was if I had started reducing exposure through the second half of 2017. Those who lived through the 2008 correction have a similar story to tell. The benchmark index rose almost 50% through the second half of 2007, leaving some gains on the table could have better prepared investors for what 2008 had in store. Of course, they had no idea what was coming in 2008 but that is the exact idea, always be prepared for a large correction.

Act like an optimist most of the time, but think like a pessimist at regular intervals.

Aim to be rich, but don’t aspire to become very rich. Too much money pushes you into dealing with a higher degree of complexity that takes away the joy of life.

When strong leaders display a rare moment of vulnerability, it makes them more endearing to their followers.

Perfection is always short lived. Some amount of imperfection and suboptimality make things more enduring.

Looking back at why I made some of the career choices

• After I got done with studying engineering, I took up a job with a leading IT services company. Wrong, that choice was made for me since most well-paying jobs on offer in 2003 were IT services jobs.

• I took up a business development role in IT Services post my MBA, this time I had more choices so the choice wasn’t really made for me. However, I still did not have too much clarity on what I wanted to do; I just had some clarity on what I did not want to.

Before you come at me, I wasn’t alone in not being very clear about what I wanted to do; I might be one of the few though who is willing to admit it openly.

Most people sleepwalk through life and lack the agency/will to proactively make changes. Not every change will be on your terms and not many are willing to discount their market value in the process of self-discovery. Very few proactively chose their careers, even if that choice was based on misconceptions.

When I decided to move out of my first role post MBA, it was because I figured out that I was temperamentally not suited to what that career choice called for. I am a thinker who likes to have independent views on most things and I like to express myself through what I do. For this reason, I figured I was better off in career choices where there is scope for individual flair.

There really wasn’t much of a chance of that happening in an engagement manager role in the IT industry, at best one could become a central co-coordinator who manages multiple stakeholders (product team, technical and functional teams, technology delivery team, operations, contracting, finance etc) to keep the customer engagement on track. IT is primarily a process driven and execution heavy industry, I like complexity in thinking but not in execution on a day to day basis.

I still remember the look on my manager’s face when I told him of my reason to call it quits, even before I had lined up a replacement offer. The bloke just could not understand what the hell I was talking about. He wasn’t the best boss I’ve had but even if the guy had been 10 times better, I’d still have quit. I did not quit my boss, I did not quit the organization, I quit the entire damn industry. If I hadn’t seen it this way, I’d most probably have moved to competition and successfully changed my boss but would have continued to hate each day of my life.

If you are a performer in a circus and you hate that way of life, a more pleasant trainer does not make much of a difference.

If you hate working in the assembly line, better air conditioning cannot make things drastically better.

Most professionals reconcile to their situation without trying too much and end up projecting their necessity as a virtue. When we cannot generate other options, we end up rationalizing the situation and the choices that got us there.

That is when we fall into the mold of “let’s make incremental improvements” rather than start with first principles and question the basics. Once you get ego invested into the choices that got you to where you are, it is very difficult to give it all up and walk; even if you don’t like the situation you are in.

Ever wonder why people continue to remain stuck in bad jobs and bad relationships? They wonder if their job would be more tolerable if only their boss were more polite and supportive. They wonder if their relationship would be more tolerable if only their partner changed a few things about themselves. Rather than wonder if the very foundation of the engagement is weak.

Some of the questions that my IT services employer wanted their customer facing teams to think about in 2010 were

• Can you engage your customers in a meaningful discussion about their business?

• Can you provide thought leadership to your customers?

• Can you be a trusted advisor to your customers?

Today my answer to each one of these is a resounding yes, because I had the good sense to ask basic questions rather than blame by boss for why my career wasn’t feeling meaningful enough. I would have been an average performer at best in my IT sales stint, there was no genuine pull I felt to put in the effort to excel at what I was doing. I was temperamentally unsuited for that career choice; getting a better boss or a different employer would not have fixed this problem. You cannot be passionate about something you do not care for. An investing career ticked all the right boxes for me. I run at a frenetic pace because I want to, not because I have to. And I can do this for the next 20 years and not get bored or tired.

Superficial advice like “Work for a good boss” does not fix fundamental problems. What can fix them are honest soul searching and the willingness to try out multiple things before you decide to commit to a particular path.

The willingness to take a few knocks, the courage to take a few steps back every once in a while; these can lead to clarity in the long run.

• Are the headlines printing “worst week/month in many years?” – Yes

• Does the macro news flow make India look like a hopeless investment destination? – Yes

• Do we see unambiguous signs of investor despair? – Yes

• Have the strongest stocks of the past 12 months finally taken a tumble? – Yes

• Do we see negative double digit historical return on key indices over shorter timeframes? – Yes

Now coming to some nuanced questions –

• Is the current price damage the first episode of its kind over the past 2 years? – No

• Does this steep price correction follow a time correction? – Yes

Going by history, the current market texture meets most conditions needed for good investing outcomes from here over the next 2 years. A steep price fall that follows a time correction phase has the tendency to force out many strong hands too and not just weak hands. Our reading is that the market now meets our criteria of a “fallen market” and not just that of a “falling market”. We now see some stocks that are trading well below their 10Y average trailing PE multiple, we also see a few stocks where the cash equivalents on the balance is sheet is ~50% of the current market capitalization!

The narrative of “stay safe in large caps” has been decisively punctured through the fall this week. Some of our own best performing stocks over the recent past have seen a price damage of ~15% in this week alone. And some of them are proven market leaders in their segments that are likely to deliver earnings growth of > 20% over the next 12 months. And at a market capitalization of > 50,000 Cr to boot. This sums up the current state of the market and we cannot think of too many similar situations we have dealt with since 2019. When the strongest stocks fall on overall market pessimism (probably because investors are booking profits wherever present), this trend has usually acted as a reliable sign of a peaking out of investor pessimism.

Will this time be any different? We should know in a few months

For investors who have the ability and the willingness to take a 3 year horizon from here, the next course of action should be rather obvious. After ensuring survival over the immediate term that is. One should not exceed the outer bounds of the asset allocation template just because prices look mouth watering. This discipline needs to be maintained even in the current situation, even if your view is extremely bullish from here.

Investors need to have a nuanced view on whether one wants to exhaust all cash quickly or would it be a good idea to wait for stability before committing fully. The nuance that we need to keep in mind is that a long drawn time correction needs a patient approach. Before the steep fall of this week played out, our answer would have been to space things out rather than commit fully right away. But with this bout of price damage this week, we aren’t sure if the market will give investors too many opportunities to catch the first 5-10% up move in stocks, whenever it happens. Sharp price falls that are driven by fear of external factors are usually followed by sharp relief rallies that shock investors with their ferocity. The first few price up moves are met with disdain with few investors trusting the sustainability of the up move. It is only after individual stocks move ~15% from the recent bottom that investors start considering the possibility of a new run.

The intent is not speculate here but to drill deeper into how the market behaves once peak pessimism is priced in. It is easy to say “I am happy to miss the first 10% of the up move” but please be aware that you will most likely not have clarity even after the first up move is done. Taking an exit now and waiting for things to settle down before deploying money sounds simple but is exceptionally difficult to execute well for this reason.

Our suggestion is that investors should do some soul searching and establish that they indeed are deploying incremental capital with a 2 year+ horizon while being prepared for more downside immediately. Once this is in place, we see no point in playing it too conservatively from here. At least 50% of the balance cash needs to go into your chosen set of funds/stocks closer at the current market level. The balance cash can be deployed as you get more clarity/conviction but it would be meaningless to take baby steps right now and operate in tranches of 5-10%. One cannot get superior investing outcomes without risking the possibility of being wrong. Playing it too safe usually results in average or below par investing outcomes.

The pace of the price rise in crude oil has caught many by surprise, to some extent the current panic is understandable. For the longest time, India’s biggest fragility has been crude followed by our penchant for buying gold. If the environment moves towards sustained higher prices on both crude oil & gold, the current account deficit of India will once again start making the headlines. But more importantly it will first cause more mayhem in the USD-INR, and it s very difficult for FPI’s to commit capital to India when the outlook for the INR looks bleak in the short term. The hope in January was that a successful conclusion of the US trade deal will put a floor under the USD-INR pair but that joy was short lived. The Dollar Index (DXY) has started to trend up once the Iran incident started and this has put further pressure on the INR.

But we must keep in mind that the situation always looks the darkest before the eventual bounce back. Investors will do well to remember that 60 days of elevated crude oil price is not going to change the medium term dynamics for most sectors. The short term will obviously see disruptions on RM pricing and energy availability for resource hungry sectors. Sectors like cement, ceramics where power & fuel cost as a % of revenue exceeds 20% might face the brunt of it in March and Q1 FY27 until the situation stabilizes. The market will watch for signs of whether the elevated crude oil price will be an affair that lasts for weeks or months in 2026.

While we do believe that the way the world has been co-existing all these years is unlikely to be the same going forward (thanks to the antics of the current US regime), we also believe that the market will get fatigued of negative geopolitical narratives over time. The issues that got the market worried in the 2022 don’t even make the headlines today. Markets, prices & investors move onto newer narratives – that is what they eventually do. So long as capitalism drives the world, investors will compete with each other for higher returns and ensure that a boom cycle will follow difficult times in the market.

The other bet to make is that India has traditionally taken aggressive market friendly measures only in the face of a crisis. By all means, the current geopolitical climate has brought to the fore many mini-crises, if not all massive one like the COVID outbreak. The policy makers staying silent while the INR goes into a free fall has caught many by surprise, but the counter to that is that a weaker rupee mitigates the effects of tariffs to a respectable extent. If the West Asia crisis turns out to be an affair longer drawn than expected, there could be some strong policy measures coming through to assuage investor concerns.

At the same time we need to reconcile to certain challenges. Some of the highly valued & well represented sectors in the market are unlikely to deliver double digit growth over the next few years. With earnings growth lagging 15% p.a. in these pockets, it will affect the expected return from the NIFTY 50 over the next few years. India’s market structure is not conducive for a repeat of the 2003-07 period of earnings growth of > 18% p.a. at the NIFTY 50 level. India will need to find new growth engines over the next few years, that the profit pool will pivot to other pockets is very likely from here.

Before we get all gloomy about the Indian market, there are some positive takeaways from the Q3 FY26 earnings season

The BSE 500 universe grew revenue in double digits (YoY) for the first time in 3 years

Auto sales have been excellent across the board (both primary & dealer level) since September 2025. CV, tractors, PV and 2W segments are all doing well

HRC prices moved up by 6-7% from the December bottom in January itself following the imposition of ADD. We have a situation where Indian steel makers are looking at better balance sheets and excellent cash flows over the next 3-5 years

Indian pharma & CDMO players are getting more integrated into the global GLP supply chain. This is one industry where India is a serious player and our capability as a nation is only getting better, it does suffer from doubts on terminal value that is currently plaguing the IT industry

The theme of import substitution across electronics continues to pick up pace. This is by far one of the more serious attempts by the Indian Govt to correct the balance of trade in a few sectors where policy action can make a difference

India’s stature in the world has taken a leap post May 2025. So many defense & aerospace related businesses are boasting of order books that offer a 5 year+ growth visibility. Some of them are selling to marquee names in the export sector

India’s policy makers pulled out two bazookas in 2025 in the form of Income tax regime change & GST rationalization. Both of these are yet to be seen objectively by investors since the market mood since April 2025 has been dominated by geopolitics rather than economics.

We continue to broaden our coverage of sectors and businesses and we sometimes get pleasantly surprised by a few things we read about. We are finally at a stage where the business valuation (in general) is starting to surprise us positively, though the current portfolio price damage doesn’t give us much to cheer about. Some businesses across the defense, aerospace and data center themes looks interesting if they were to participate in the current correction after holding fort for many weeks now.

So many businesses that we got tempted to buy into over the past year are today available at prices that are 20% lower. The market taking a turn for the worse towards November end told us to avoid needless changes in the portfolio. For most stocks have fallen, we don’t see too many pockets where investors could have sought refuge due to relative strength. Whatever didn’t fall over the past 5-6 months has finally fallen this week. 15% gone in no time, such has been the price damage. Rotating out of weak counters into “strong counters” in January would have worked against you in the March fall. Since March 1st the NIFTY has fallen 8.1% while the NIFTY MIDCAP 100 has fallen 7.4% and the NIFTY SMALLCAP 100 has fallen 6.1%.

Investing is never easy because of market phases like the current one. Conviction and patience are easy to talk about but are difficult to execute in the face of relentless price damage.

No matter how experienced one is, such market phases are difficult to deal with.

Process over outcomes is the only way around, and the only way around is sometimes through it.

Krishca Strapping Solutions Ltd presented to us an interesting proxy to play the enhanced outlook of India’s steel industry. While steel strapping is not as known a segment within steel as primary steel making or steel pipes & tubes, our intent behind this note is to explore if the business can offer the prospects that get us excited about microcaps – large market size, sizable market share, good unit economics & improving prospects. Krishca Strapping Solutions Ltd was also in the news through 2023 and 2024 following the IPO and QIP process which communicated an ambitious outlook for the business. In this note, we explore if we see enough positive possibilities in this unexplored and undiscovered business.

Krishca Strapping Solutions Ltd Company Summary

Krishca Strapping Solutions Ltd is a leading Indian industrial packaging solutions company, primarily engaged in the manufacturing of steel strapping and the supply of a broader basket of primary packaging and preservation products to the steel and allied industrial sectors. Krishca Strapping Solutions Ltd manufactures high-tensile and ultra-high tensile steel strapping designed for automated packaging machines, strapping tools and sharp-edged steel products, where consistency, tensile strength and reliability are critical from a safety and operational standpoint.

Over the years, Krishca Strapping Solutions Ltd has positioned itself as a quality-focused alternative supplier in a highly concentrated industry, catering to large steel producers such as Tata Steel, JSW Steel and SAIL, as well as several secondary steel manufacturers.

With a state-of-the-art manufacturing facility located in Chennai (Thiruvallur district), Krishca Strapping Solutions Ltd services customers across India and select export markets through a combination of direct strapping supplies and long-term packing contracts, where Krishca Strapping Solutions Ltd provides end to end packaging solutions including strapping material, tools, manpower and maintenance. To deepen wallet share and evolve from a product supplier to a solutions provider, Krishca Strapping Solutions Ltd has expanded its primary packaging portfolio to include tarpaulins, dunnage air bags, HDPE/LDPE films, desiccants and VCI-based corrosion protection products, which are increasingly critical in export packaging and moisture-sensitive steel logistics.

Krishca Strapping Solutions Ltd is also in the process of backward integrating into the cold rolling mill (CRM) segment, enabling in-house processing of medium and high-carbon steel and select stainless-steel strips. This backward integration is expected to improve raw material security, reduce procurement lead times and partially insulate margins from volatility in specialty steel availability, while also opening up an additional revenue stream through the sale of value-added special steel products to external customers. Over the medium term, this integration strengthens Krishca Strapping Solutions Ltd’s positioning as a more vertically integrated, solutions-oriented packaging and materials platform rather than a standalone consumables manufacturer.

Krishca Strapping Solutions Ltd Company Genesis

The inception of Krishca Strapping Solutions Ltd was driven by a fundamental macro-analysis of the Indian industrial landscape. Bala Manikandan, a young promoter with a Master’s in Cyber Security from University of Westminster, UK. returned to India with a clear intent to pivot away from his family’s legacy business in Sivakasi, Tamil Nadu. The family operated in the fireworks industry (a sector the promoter identified as a ‘dying industry’ with limited long-term terminal value)

The promoter Bala Manikandan, conducted a top-down analysis of the Indian Steel Industry. He observed that while India’s steel production was projected to grow aggressively from 100 million tons to a projected 300 million tons within 5-7 years (a CAGR of 15%) and the ancillary support ecosystem was lagging. Specially steel strapping used for securing steel coils (the heavy-duty packaging required to hold steel coils). At the time, the market was an oligopoly serviced by only three manufacturers catering to the entire nation. Seeing a clear supply deficit and a growing addressable market, the promoter deployed initial family capital to set up Krishca Strapping Solutions Ltd in 2017, with a strategy focused on technical differentiation, consistency, and long-term customer stickiness rather than price-led competition.

Between 2017 and 2019, Krishca Strapping Solutions Ltd grappled with technology absorption challenges, sourcing specialized machinery and know-how from China and Korea to establish a heat-treated steel strapping line (a process far more complex than standard metal processing). Commercial production commenced in March 2020, only to be immediately disrupted by the COVID-19 lockdown. The plant became operational just one week before the national lockdown. This left Krishca Strapping Solutions Ltd burdened with high operating leverage (fixed costs and debt service obligations) against a backdrop of zero revenue. Furthermore, the product itself steel strapping is a critical consumable. Steel mills are historically risk-averse regarding strapping because a failure can lead to catastrophic operational downtime or safety hazards.

The first year was a battle for survival, with the promoter admitting they considered exiting the business entirely. However, the supply crunch in the market eventually worked in their favor. The existing oligopoly could not service all demand, leading smaller players to trial Krishca Strapping Solutions Ltd’s product, which allowed the company to generate initial cash flow and to establish its first operating track record. The inflection point came in FY21 with vendor validation from JSW Steel, which awarded Krishca Strapping Solutions Ltd a large long term order (~₹36 crore). Interestingly, this was a case of backward integration driving demand. JSW Steel, aware that Krishca Strapping Solutions Ltd was purchasing raw materials from them and recognized Krishca as a potential vendor for their own packaging needs. This contract acted as an industry wide quality endorsement as once a Tier-1 major like JSW validated the technical specifications, it triggered a network effect, which allowed Krishca Strapping Solutions Ltd to onboard other industry majors like Tata Steel and ArcelorMittal, Nippon Steel. Over time, management consciously strengthened its competitive moat by emphasizing process consistency, lead-free production, and reliability (critical in a segment where the cost of failure far outweighs marginal price differences, often by 10-20x)

To deepen its integration with customers, Krishca Strapping Solutions Ltd evolved its business model from a pure manufacturing play to a service-oriented Packaging Contract model. Large steel plants prefer to outsource non-core activities. Krishca Strapping Solutions Ltd began offering end-to-end solutions where they supply the straps, manpower, tools, and maintenance for a per ton packing cost. As These contracts run for 6 months to 5 years (e.g., a 3-year deal with Vedanta), providing high visibility on future earnings and By taking over the entire packaging headache, Krishca Strapping Solutions Ltd makes it incredibly difficult for a client to switch vendors, effectively locking in the customer

Krishca Strapping Solutions Ltd Management details

Lenin Krishnamoorthy Balamanikandan (Managing Director & Chairman) as the founder and promoter, he drives the overall vision and strategy, He remains the primary executive leader, often leading earnings calls and strategic announcements.

Mrs. Navaneethakrishnan Saraladevi is a key promoter and the spouse of Mr. Lenin Krishnamoorthy Balamanikandan. Aged ~35, she holds an MBA (Marketing) degree from Madurai Kamaraj University and brings over 5 years of prior experience in sales and finance. As Whole-Time Director & CFO (appointed CFO in December 2022), she oversees financial strategy, capital allocation, compliance, and risk management. Holding ~8.9% equity in the promoter category.

Mr. Jagajyoti Naskar (Whole-Time Director & CEO) – Recently appointed as Chief Executive Officer effective November 12, 2024. This marks a key professionalization step for Krishca Strapping Solutions Ltd, bringing external expertise to handle growing scale, diversification, and execution of multi-year contracts. With over 24 years of experience in the packaging and industrial materials sector, Mr. Naskar was brought on board to strengthen operational leadership amid rapid growth. His appointment followed Krishca Strapping Solutions Ltd’s maturation post-IPO (2023). Prior roles likely involved senior positions in similar B2B industrial segments (steel/allied packaging ecosystem).

Krishca Strapping Solutions Ltd – Funding History

Krishca Strapping Solutions Ltd funding journey began with a successful maiden IPO in May 2023, followed by a substantially larger preferential allotment in August 2024, both executed at progressively higher valuations and attracting strategic ecosystem players.

IPO

Krishca Strapping Solutions Ltd IPO completed on May 19, 2023, raised ₹17.93 Cr through a 100% fresh issue of 33,20,000 equity shares at ₹54 per share on the NSE Emerge platform.Prior to the public offer, Krishca Strapping Solutions Ltd secured ₹4.88 Cr from anchor investors i.e Rajasthan Global Securities Private Limited (₹3.88 Cr) and Saint Capital Fund (₹1 Cr). IPO Proceeds were prudently deployed – ₹12 Cr toward establishing a new high-tensile steel strapping production line, ₹3.75 crore for debt repayment to strengthen the balance sheet, and the balance for general corporate purposes. Krishca Strapping Solutions Ltd got Listed on May 26, 2023 and delivered an impressive ~120% gain.

Preferential allotment & Convertible warrants

Krishca Strapping Solutions Ltd executed a significantly larger fundraise in August 2024, raising ₹68.04 Cr via preferential allotment of equity shares and fully convertible warrants at ₹233 per share/warrant. This comprised ₹49.40 crore from 21,20,000 equity shares allotted to 27 non-promoter entities and ₹18.64 crore from 8,00,000 warrants, with the promoter (Mr. Lenin Krishnamoorthy Balamanikandan) participating via 2,50,000 warrants to maintain alignment. The allotment attracted strategic investors closely linked to the steel industry, including entities associated with APL Apollo Group (S Gupta Family Investments), Shyam Metallics & Energy Ltd. (Subham Buildwell and Narantak Dealcomm), Real Ispat and Power (Real & Sons), and Shri Bajrang Power & Ispat (Shri Bajrang Commodity).

Utilization of the ₹68 crore of which ₹46.50 Cr has been earmarked for manufacturing facility expansion (primarily funding the 60,000 TPA cold rolling mill complex and related backward integration) and ₹12.50 Cr for working capital to support packaging contracts and setting up new product lines for primary packaging (tarpaulins, dunnage bags, VCI films, etc.), and ₹9.04 crore for general corporate purposes.

Krishca Strapping Solutions Ltd Industry Landscape

Steel Industry

India’s steel industry stands as one of the brightest spots in the global metals landscape, and it is positioned as the world’s 2nd largest crude steel producer. In FY2024-25, the country achieved a record crude steel production of approximately 151 million tonnes (provisional data from Ministry of Steel), up ~6-7% YoY, with finished steel consumption reaching ~150 million tonnes. Which reflects 9-11% growth in recent periods driven by infrastructure push and industrial recovery. Installed crude steel capacity has expanded rapidly to ~200 million tonnes as of 2025, supported by aggressive brownfield expansions and greenfield projects from majors like Tata Steel, JSW, SAIL and AM/NS India.

This momentum aligns closely with the National Steel Policy 2017, which targets a crude steel capacity of 300 million tonnes by 2030-31, with projected production of 255 million tonnes and per capita finished steel consumption rising to ~158 kg (from current levels of ~97-100 kg). Steel demand is expected to grow at 7-10% CAGR over the next 5-10 years, fueled by:

• Massive infrastructure spending (e.g., Gati Shakti, National Infrastructure Pipeline, Bharatmala, Sagarmala, and housing/urbanization initiatives).

• Strong tailwinds in key consuming sectors: automotive (Make in India, EV push), shipbuilding, heavy machinery, cement, and engineering goods.

• Rising exports of steel and value-added products, alongside domestic logistics growth (8-10% CAGR to 2030), amplifying needs for secure bulk handling.

For ancillary players like Krishca Strapping Solutions Ltd this steel capex cycle translates into a great opportunity in steel strapping and packaging solutions. With India’s steel output and consumption scaling aggressively, demand for consistent, high-quality strapping (including automated lines, tools, and end-to-end packaging contracts) is set to grow in tandem or at least mirroring steel’s 8-10%+ annual expansion.

Steel Strapping Global Market

The global steel strapping market is a specialized, high-margin niche within industrial packaging, driven by the need for secure, high-strength bundling of heavy loads in steel, metals, construction, logistics, and manufacturing. High-tensile steel strapping offers superior durability and reliability compared to plastic or composite alternatives, making it indispensable where failure risks operational downtime or safety hazards.

According to The Business Research Company, the market reached $1.26 bn in 2025 (up from $1.18 bn in 2024) and is projected to grow to $1.71 billion by 2029 at a CAGR of 7.9%, with further extension toward $1.82 bn by 2030. Key drivers include robust expansion in construction and infrastructure sectors, rising global logistics volumes, and growth in metal, paper, glass, and building materials industries. Asia-Pacific dominates as the largest region in 2025, fueled by rapid industrialization, massive steel production (led by China and India), infrastructure megaprojects, and expanding manufacturing/export bases.

India Steel Strapping Industry

India’s steel strapping consumption stands at approximately 9,000–11,000 tonnes per month (~108,000–132,000 tonnes annually) as per Krishca Strapping Solutions Ltd DHRP. This aligns with India’s finished steel production and consumption scaling toward 150+ million tonnes in FY25.

The addressable market in value terms is estimated at ₹1,400-1,500 Cr annually (FY25 basis), The broader Indian steel packaging contract market (including end-to-end services) is pegged at ₹2,000-2,500 Cr per annum.

The Indian steel strapping industry is characterised by high entry barriers and concentrated profit pools, with only four meaningful manufacturers operating at scale. For nearly two decades, the industry effectively functioned as an oligopoly with just three players, reflecting the technical complexity, customer qualification requirements, and safety critical nature of the product. The structure has stayed broadly consistent since the Krishna Strapping Solutions Ltd’s Draft Red Herring Prospectus in early 2023, though Krishca has gained share through capacity expansion, quality differentiation now reflecting ~10% market share in recent investor materials (up from the ~7.5% cited in the DRHP and early estimates).

Key players and approximate shares (based on DRHP disclosures, management commentary, and cross-verified sources):

• Signode India Ltd (part of global leader Signode/Crown Holdings): ~49% market share, with ~6,000 tonnes/month installed capacity across units in Hyderabad and Dahej (Gujarat), producing ~4,500 tonnes/month on average. It remains the clear market leader with a strong legacy presence.

• Grip Strapping Pvt Technologies Ltd (subsidiary/associate of Germany-based Cyklop Group, a leading global player in packaging systems and materials since 1912): ~27.5% share, ~4,000 tonnes/month capacity across Hyderabad and Vizag, averaging ~2,500 tonnes/month production.

• Walzen Strips Pvt Ltd (Kolkata-based group, founded in 1989 by technocrat Mr. Tejomoy Roychowdhury and family-owned/operated entity focused on high-tensile steel strips and strapping): ~11% share, ~1,500 tonnes/month capacity in Kolkata, ~1,000 tonnes/month output.

• Tata Steel BSL Ltd – ~5% share, captive-focused (primarily internal use) with ~1,000 tonnes/month capacity near Mumbai/Khopoli, ~500 tonnes/month production.

• Krishca Strapping Solutions Ltd – ~7.5% share as per DRHP-era estimates (~1,500 tonnes/month installed capacity at Chennai facility, averaging ~900 tonnes/month production). Recent investor presentations and company overviews now show ~10% market share, reflecting gains from new lines (e.g., hardening/tempering for ultra-high tensile).

Management noted that the market itself is expanding at a healthy pace, with estimated industry growth of ~10-15% annually, driven by rising steel production, capacity expansions across major steel mills, and increasing adoption of packing contracts. Importantly, even as new capacity is added, customers continue to seek alternative suppliers beyond the incumbent multinational players, creating room for newer domestic manufacturers to scale without triggering aggressive price competition.

Indian Steel Strapping Industry – Key Dynamics & Krishca Strapping Solutions Ltd’s Positioning

What are the major entry barriers in the steel strapping industry?

The primary entry barrier is the rigorous product approval process, driven by the safety-critical nature of steel strapping. Coils weighing 10-25 tonnes (e.g., HR/CR coils) are secured using strapping; even a minor crack or failure can cause catastrophic accidents, fatalities, or severe mill downtime. Steel mills therefore treat vendor qualification with extreme caution. Approval typically takes 6-12 months (or up to 3 years for new entrants), involving extensive testing, trial supplies, and proven performance history. For public-sector undertakings (PSUs) such as SAIL or RINL (Vizag Steel), the bar is even higher. New suppliers must demonstrate private-sector purchase orders worth ₹10-15 Cr over the prior 2 years to even participate in tenders. Krishca Strapping Solutions Ltd supplied only to private mills until recently, when it participated in its first PSU tender in August 2025, having built the necessary credentials and track record. It successfully won the tender and began supplying to SAIL . This slow, credential-heavy qualification cycle creates a high moat, limiting new entrants and protecting incumbents.

Are there viable alternative materials to steel strapping in the steel industry?

No meaningful alternative exists for primary steel mill applications in the foreseeable future. Steel coils exit ovens at 200–300°C, requiring strapping that can withstand extreme heat without degrading. Plastic or composite strapping cannot handle these temperatures. In secondary/tertiary markets (smaller loads up to ~500 kg), touch-strapping or plastic bands are used, but they are unsuitable for heavy, hot-rolled, or high-value steel coils. Steel strapping remains the only reliable, high-tensile solution for mill-to-customer transport in the primary steel sector.

Why don’t large steel mills produce steel strapping in-house?

Steel mills have little incentive to backward-integrate into strapping due to complexity, scale mismatch, and focus on core competencies. Major players like JSW Steel operate 11-12 sites across India, each with unique packing needs i.e strapping thickness ranges from 0.4 mm to 1.27 mm, with 500+ combinations of width, finish, coating, and temper. A single site might consume only 10–20 tonnes/month of specific grades. Setting up dedicated lines for such fragmented, low-volume requirements would demand significant capex and management attention for marginal cost savings. Steel companies prioritize multi-crore projects; strapping is a small consumable relative to their ₹10+ lakh crore revenues.

Management draws a clear analogy – Just as a factory routinely purchasing cardboard boxes or packing tape (₹10-20 lakhs/month) would never invest in its own cardboard or tape manufacturing unit because it’s non-core, uneconomical, and diverts resources from the main business a steel mill treats strapping similarly. Their primary aim is steel production, not ancillary consumables. Outsourcing to specialized vendors ensures efficiency, competitive pricing, and supply reliability without distracting from core operations.

How is Krishca Strapping Solutions Ltd positioned versus peers?

Krishca Strapping Solutions Ltd is structurally differentiated through technology and cost leadership. It is currently the only lead-free steel strapping manufacturer in India and operates the country’s only fully automated, single-line, end-to-end production process (vs. competitors’ 2-3 step processes with higher manual intervention). This automation delivers the industry’s lowest production and labour costs. The Chennai facility’s proximity to the port provides logistical advantages and faster export turnaround compared with inland peers. Krishca Strapping Solutions Ltd’s backward integration into cold rolling (captive high/medium-carbon and stainless strips) will further strengthen raw material security and cost flexibility.

Why are Krishca Strapping Solutions Ltd’s margins higher than peers?

Krishca Strapping Solutions Ltd Superior margins are derived from automation, process efficiency, and raw material innovation. Production costs are reportedly less than 50% of competitors’, driven by lower labour intensity, energy-efficient induction-based furnaces (precise control from 300–700°C, allowing multi-grade processing on one line), and energy costs of ~₹2,000/tonne (vs. ~₹4,000/tonne for muffle-furnace peers). During COVID, focused R&D enabled qualification of alternate, structurally cheaper steel grades, delivering ~5-6% raw material cost savings. These factors combine to support consistently higher EBITDA margins.

What is Krishca Strapping Solutions Ltd’s pricing differential versus incumbent MNC players?

Krishca Strapping Solutions Ltd typically offers a ~5–6% discount versus multinational incumbents (especially outside PSU contracts, where legacy players historically command higher pricing). This advantage is rooted in Krishca Strapping Solutions Ltd’s lower structural cost base i.e automation, energy efficiency, reduced labour, and raw material flexibility.

What import barriers protect the domestic steel strapping market?

Imports are heavily restricted by mandatory BIS certification (under IS 5872 and the Steel QCO framework), required for any supplier to sell in India. Only one Korean company currently holds valid BIS certification globally, blocking most overseas players (especially from China). Additionally, an entry/Basic Customs Duty of ~7.5-10% applies, which creates a combined effective burden of ~18% (duty + compliance costs). This results in a ~20% price disadvantage for Chinese imports versus domestic levels,thus limiting imports to just 1-2% of the market . These barriers strongly favor local manufacturers and reduce substitution risk from cheap foreign supply.

Does Krishca Strapping Solutions Ltd have advantages in export markets?

Yes, Krishca Strapping Solutions Ltd enjoys greater geographic flexibility than incumbents. Signode’s regional allocation (e.g., Turkey/Korea plants restrict Indian operations from certain Middle East markets) and German competitors’ internal policies limit their reach, while Krishca Strapping Solutions Ltd, based near Chennai port, can price more competitively in regions like the Middle East. This enables selective export wins without intra-company restrictions.

However, aggressive competition from Chinese and Korean exporters in 2025 has created significant pricing pressure in key markets, leading Krishca Strapping Solutions Ltd to deliberately slow aggressive export plans. Management noted in H1 FY26 that competing with China/Korea is very difficult abroad, with export margins lower (10–12%) than domestic. As a result, the company has de-prioritized volume chase in exports and focusing instead on domestic growth.

Krishca Strapping Solutions Ltd Business Details

Historically (FY21-FY23), Krishca Strapping Solutions Ltd business was almost entirely driven by standalone steel strapping sales. Over the last 2 years, Krishca Strapping Solutions Ltd has evolved into a more integrated model with two distinct but synergistic verticals: steel strapping (core manufacturing) and packing contracts (service-led forward integration). Backward integration into cold-rolled coils (CRC) and diversification into primary packaging products (tarpaulins, dunnage bags, VCI films, desiccants, etc.) represent newer growth levers.

Steel strapping – Steel strapping is Krishca Strapping Solutions Ltd largest business segment, accounting for the bulk of revenues since inception and forming the base on which Krishca Strapping Solutions Ltd has built its customer relationships with primary and secondary steel producers.

Krishca Strapping Solutions Ltd manufactures high-tensile steel strapping used for securing heavy loads in steel coils, TMT bundles, glass and construction materials, where product consistency and tensile performance are mission-critical.

Krishca Strapping Solutions Ltd operates a state-of-the-art integrated manufacturing facility in Chennai with an installed steel strapping capacity of ~30,000 MT per annum (increased from the initial ~18,000 MT through phased expansions and new hardening/tempering lines), along with in-house production of strapping seals and supply of strapping tools. This enables the company to offer customers a complete securing system rather than a standalone consumable product.

While reported utilisation of the existing strapping line was ~65% in H1FY24, management’s decision to add new capacity has been driven more by product capability constraints than by volume saturation. The earlier production line was not technically configured to manufacture ultra-high-tensile steel strapping with Ultimate Tensile Strength (UPS) exceeding 110, which is the fastest-growing segment of the market as steel producers increasingly migrate to higher-strength strapping to optimise logistics efficiency and reduce breakage risk. Management has indicated that ~30-40% of industry demand has already shifted to ultra-high-tensile grades, and this share is expected to increase further. The newly commissioned line is specifically designed to address this technology gap, allowing Krishca Strapping Solutions Ltd to participate in a structurally expanding sub-segment rather than merely adding incremental capacity to existing grades.

From a manufacturing standpoint, Krishca Strapping Solutions Ltd differentiates itself through its lead-free, environmentally compliant heat treatment process, which replaces conventional lead baths with a fluidized bed process using aluminum oxide, making the process safer, cleaner and more energy efficient. The production line is PLC-controlled and fully automated, allowing for tighter control over metallurgical properties and consistent grain structure, which is critical for ensuring tensile strength, elongation and shock resistance in high-load applications. The product portfolio spans multiple grades across regular duty, medium duty, high-tensile and ultra-high-tensile steel strapping, with finishes ranging from blued tempered and painted to zinc-coated variants depending on corrosion protection and end-use requirements.

On customer stickiness, management acknowledged that in certain TMT segments, particularly in central India, buyers may not exhibit strong brand preference as long as quality standards are met. However, Krishca Strapping Solutions Ltd has differentiated itself in the southern markets Tamil Nadu, Kerala, and Karnataka by offering custom-branded and coloured steel strapping along with branded seals, a capability currently limited to only a few manufacturers in India. This value-added offering has enabled the Company to build stronger relationships with secondary TMT manufacturers that place higher emphasis on branding, thereby enhancing customer retention.

Capacity & Manufacturing Footprint of Steel Strapping –
Krishca Strapping Solutions Ltd’s steel strapping operations are currently supported by two fully operational production lines at its Chennai facility, with the new strapping line commissioned and stabilised. The combined installed capacity stands at ~30,000 metric tonnes per annum, which management has indicated is sufficient to support ₹300-350 Cr of annual steel strapping revenue at steady-state utilisation, even without factoring in contributions from packing contracts or allied businesses. Importantly, the new line functions primarily as a dedicated heat-treatment line, while the existing line operates as the finishing line, implying that the two lines are operationally integrated and must run together to produce finished steel strapping. This configuration enhances metallurgical consistency and throughput but also means capacity utilisation is effectively governed at the integrated system level rather than as two independent lines.

In parallel ,Krishca Strapping Solutions Ltd has undertaken workflow optimisation initiatives, including relocation of certain strapping manufacturing activities to an adjacent facility to improve material movement, layout efficiency and throughput. To strengthen last-mile execution and customer servicing,Krishca Strapping Solutions Ltd has expanded its regional presence through branch offices and small warehousing setups in Jharkhand and Chhattisgarh, strategically aligned with key steel-producing clusters such as Odisha and the Raipur secondary steel market. These regional nodes support faster tool servicing, availability of critical spares and on-ground execution for packing contracts, thereby improving service reliability and response times for both standalone steel strapping customers and contract-based packaging clients.

Packing Contracts – Krishca Strapping Solutions Ltd entered the packing contract business as a forward integration to structurally strengthen revenue visibility and protect its core steel strapping volumes as the steel industry increasingly migrates towards outsourced, end-to-end packaging solutions.

The packing contract market in India has historically been dominated by integrated steel strapping manufacturers such as Signode, given that steel strapping is the primary consumable in steel packaging. With in-house steel strapping manufacturing and an established strapping tools portfolio, Krishca Strapping Solutions Ltd identified packing contracts as an extension of its value chain, requiring incremental investment largely in manpower deployment, on-site execution and service management rather than in new manufacturing infrastructure.

A typical packing contract involves three key components i.e steel strapping, strapping tools and manpower deployed across multi-shift operations at steel plants. While Krishca Strapping Solutions Ltd already supplies the material and tools, the contract model allows Krishca Strapping Solutions Ltd to monetise manpower deployment, tool maintenance and site-level execution, i.e materially expanding the addressable revenue pool. Importantly, once a packing contract is secured, steel strapping offtake is assured for the contract tenure at pre-agreed commercial terms which reduces monthly volume volatility and dependence on frequent price renegotiations that characterize standalone strapping sales.

Packing contracts are typically long-term in nature, ranging from one to five years, providing improved revenue visibility and order-book stability. Management has indicated that an estimated ~50-60% of steel packaging volumes in the industry are increasingly being executed through contract models, which implies that participation in this segment is necessary to defend and grow core strapping market share.

From a financial perspective, packing contracts currently operate at margins broadly comparable to the steel strapping business, while offering a structurally larger revenue opportunity as steel strapping typically constitutes only ~50–60% of the total contract value, with the balance coming from manpower services, tool usage and maintenance. While initial margins may be similar due to higher manpower costs and site mobilisation expenses, management expects scope for gradual margin improvement as operations stabilise, learning curves improve and repeat contracts drive operating efficiencies. However, this model is structurally more working capital intensive due to higher receivables and on-site inventory, which is likely to lower the ROCE

Krishca Strapping Solutions Ltd began actively participating in packing contract tenders in FY24, acknowledging that early entry required building execution credentials. Following initial wins with Shyam Metallics (~₹2 crore) and its first PSU contract with SAIL Bokaro (~₹2.48 crore), Krishca Strapping Solutions Ltd secured a significantly larger contract with Vedanta (~₹20 crore) and subsequently added wins with APL Apollo (~₹3 crore) and CTEC, thus establishing a credible operating track record. Krishca Strapping Solutions Ltd is currently participating in multiple larger tenders, including contracts exceeding the Vedanta order value, which management expects to support meaningful scaling of this segment over the medium term.

Over the next three to four years, management aspires for packing contracts to contribute ~40-50% of consolidated revenues, reflecting both structural industry migration and Krishca Strapping Solutions Ltd’s expanding execution capability. As the contract business scales, management expects a moderate increase in working capital intensity, with receivable cycles extending by ~30 days due to longer billing timelines inherent in service-led contracts. Within the packing contract mix, non-strapping consumables are expected to account for an increasing share over time (~60–70%), with steel strapping contributing the balance.

Sourcing & Raw Material Risk Management

Krishca Strapping Solutions Ltd follows a diversified sourcing strategy comprising long-term, quarterly, spot, and import-based contracts, which provides flexibility across different commodity price cycles. A portion of raw material is secured under 6 month fixed-price contracts, while select suppliers operate on quarterly pricing arrangements where prices are locked for 3 months. In addition, Krishca Strapping Solutions Ltd maintains import relationships and selectively books volumes when global prices are favourable, while also utilising spot purchases during periods of soft domestic pricing. This sourcing approach allows management to optimise procurement costs across varying market conditions and partially smoothen raw material volatility.

On the sales side, Krishca Strapping Solutions Ltd manages raw material price volatility through industry-standard price variation clauses embedded in customer purchase orders. These clauses are typically linked to benchmark steel prices (such as hot-rolled coil prices) on a monthly or quarterly basis, which enables systematic pass-through of input cost fluctuations to customers. Management indicated that ~70% of contracts operate under variable pricing mechanisms, while the balance comprises smaller fixed-price contracts where the strapping component is relatively limited.

In fixed-price contracts, raw material exposure is structurally lower, as steel typically constitutes only ~30% of the overall contract value, with the remaining ~70% comprising fixed components such as manpower, tools, pallets, and service elements. In such cases, Krishca Strapping Solutions Ltd builds in a margin cushion at the bidding stage to absorb potential raw material price volatility. Labour costs are also contractually protected, with minimum wage revisions under state labour laws included as pass-through clauses in customer agreements, which ensures cost recovery in the event of statutory wage hikes.

Management acknowledged that in a declining steel price environment, reported revenues may moderate due to lower billing values, as pricing is linked to steel benchmarks. However, despite revenue volatility, operating margins are expected to remain broadly stable, as the business operates on a fixed-margin framework with systematic pass-through of raw material and labour cost variations.

Primary Packaging – Primary packaging represents Krishca Strapping Solutions Ltd’s next leg of diversification beyond steel strapping and packing contracts. While Krishca Strapping Solutions Ltd’s core exposure remains linked to steel packaging, management has articulated a clear intent to expand into preservation-oriented primary packaging solutions that are complementary to steel strapping and deepen its engagement with existing customers.

Within steel mill packaging, steel strapping is only one component of the overall packaging requirement. A wide range of primary packaging materials such as HDPE and LDPE films, VCI (volatile corrosion inhibitor) packaging, desiccants, tarpaulins, lashing materials, and other protective plastics are required to prevent corrosion and physical damage during storage and transportation.

Since customers consuming steel strapping also require these allied products, primary packaging is a natural extension of Krishca Strapping Solutions Ltd’s product basket. Krishca Strapping Solutions Ltd has already begun offering several of these products, including through its export-facing operations, and leverages the same sales and technical teams to provide solution-led engagement with customers.

Management has highlighted that several primary packaging products offer superior margin potential compared to steel strapping, particularly where formulation-led value addition is involved. While commoditised plastic products such as standard LDPE films offer limited differentiation, the incorporation of corrosion-protection features such as VCI significantly enhances pricing power. VCI-based products, which require polymer engineering and chemical formulation capabilities, can generate operating margins of ~20%, materially higher than basic plastic packaging.

Krishca Strapping Solutions Ltd is currently investing in seven to eight different primary packaging product lines, supported by dedicated machinery. Management has indicated that with cumulative capex of ~₹8 crore, this portfolio has the potential to scale up to ~₹100 crore of annual revenue at full utilisation, with operating margins of around 20% over the medium term. A key growth driver within this segment is export-oriented packaging, where packaging intensity is structurally higher due to greater requirements for corrosion protection, lashing, and fabric-based protective solutions, which enables better value realisation per tonne of steel handled.

In terms of current scale, during H1 FY26, Krishca Strapping Solutions Ltd generated ~₹4.26 Cr of revenue from domestic primary packaging, accounting for ~5% of domestic revenues. Export primary packaging contributed an additional ~₹2 crore, taking total primary packaging revenue to ~₹6-6.2 Cr. At present, this business is largely trading-led with limited job work and minimal in-house manufacturing. To initially start, Krishca Strapping Solutions Ltd is setting up a desiccant manufacturing facility with ~₹2 crore capex and installed capacity of ~200 tonnes per month. Management expects the desiccant line to scale gradually, with revenue potential of ~₹20-25 Cr annually by the 3-4 year of operations.

Cold Rolling Mill (CRM) – Backward Integration – Krishca Strapping Solutions Ltd is undertaking a major backward integration project through the commissioning of a Cold Rolling Mill (CRM) complex at its Chennai facility, marking an entry into steel manufacturing. with management guiding the installation starting in January 2026 and commercial operations by Q1FY2027. The CRM will have an installed capacity of ~5,000-6,000 tonnes per month, backed by an initial capex of ~₹60 Cr and 2 MW solar power plant to improve energy efficiency and operating economics.

The CRM is designed to serve a dual strategic purpose. First, it will support captive consumption for the steel strapping business, which currently consumes ~1,000-1,500 tonnes per month of medium-carbon steel. Management expects ~20-40% of CRM output to be used internally, translating into raw material cost savings of ~₹4,000 per tonne and a structural margin uplift of ~4-5% for the strapping segment, alongside lower inventory holding and reduced supplier dependency. Second, the balance ~60% of capacity will be directed toward external sales, focused on medium-carbon, high-carbon alloy steel and stainless steel, segments where domestic availability is limited, particularly in South India, and margins are structurally higher.

Given the wide price dispersion across steel grades (carbon steel at ~₹80–90/kg versus stainless steel at ~₹350–500/kg), management has guided that the CRM can potentially generate incremental revenues of ~₹250-350 Cr at steady-state utilisation. The ramp-up is expected to be gradual, with ~20% utilisation from the first month driven by captive demand and ~35–40% utilisation by the end of the first year, followed by phased debottlenecking and incremental capex to scale capacity over time. Importantly, the CRM is being built as a flexible platform rather than a one-time project, with scope to add downstream processing equipment and expand into higher-value product categories on a staggered basis.

Forward Integration into Specialty & Super Alloys (Vajra Alloys)

Building on the CRM platform, Krishca Strapping Solutions Ltd is also pursuing measured forward integration into specialty and super alloys through a newly approved subsidiary, Vajra Alloys. The initial investment is modest at ~₹7 crore, funded largely at the subsidiary level through a mix of debt and equity capital. Over the first 1-2 years, the focus will be on commercial and industrial applications, where qualification timelines are shorter and technical criticality is lower, before gradually moving into higher-end defence, aerospace and space applications.

Management highlighted that the CRM infrastructure is already capable of processing thin precision strips (up to ~0.1 mm thickness) in high-carbon and stainless steel, a segment where India remains structurally import-dependent. Over time, the same rolling infrastructure can also be used to cold-roll super alloy plates into precision strips without major equipment modifications. While the overall super alloy market in India exceeds ₹10,000 Cr annually, Krishca Strapping Solutions Ltd has initially identified a ~₹1,000 Cr addressable sub-segment with confirmed customer interest. Krishca Strapping Solutions Ltd has already engaged with potential customers over the past 6-12 months and onboarded industry experts with 30+ years of experience in stainless steel and high-carbon alloys to de-risk execution and accelerate capability building.

Exports and Global Expansion

Krishca Strapping Solutions Ltd’s initial bullishness on global expansion, particularly in the Middle East (Dubai) was driven by the structural characteristics of the regional steel ecosystem. The Middle East is largely import-dependent for packaging consumables such as steel strapping and primary packaging materials, with most supplies coming from China and Korea. Management identified a gap for a local, solution-oriented packaging partner, as opposed to pure commodity exporters. The Dubai subsidiary, incorporated in September 2023, was set up as an asset-light trading and sales-support platform to diversify offerings beyond steel strapping into primary packaging and preservation solutions. The low cost nature of the Dubai setup (free-zone entity, minimal fixed assets) allowed Krishca Strapping Solutions Ltd to test demand without committing large capital, and management had initially guided for the Dubai entity to contribute ~20% of revenues, supported by perceived advantages of local presence and India-UAE CEPA duty benefits.

In parallel, management explored the possibility of setting up overseas manufacturing in the Middle East to address two key structural issues: long lead times from China and the absence of an integrated local packaging solutions provider. Customers in the region typically face waiting periods of up to two months after advance payments to Chinese suppliers, which creates operational and working-capital challenges. A local manufacturing presence, potentially through a joint venture, was envisaged to offer faster turnaround, on-ground service support, consulting, and automation-led packaging solutions. Management had indicated a Middle East steel strapping market size of ~₹300-400 Cr and a potential gateway for future expansion into the US market.

However, over the last 12-18 months, export market economics have deteriorated materially, leading management to adopt a more cautious stance on global scale-up. Chinese and Korean competitors have become increasingly aggressive on pricing due to lower raw material costs and excess capacity, along with higher shipping costs due to disruptions in the Red Sea, which directly compressed export margins. Management acknowledged that despite having customer demand, Krishca Strapping Solutions Ltd is either losing orders or consciously walking away from business purely on pricing grounds, not due to demand constraints. As a result, export EBITDA margins in exports are currently in the ~10-12% range, significantly lower than domestic margins.

Reflecting this margin pressure, exports declined to ~₹8.8 crore in H1 FY26 compared to ~₹23 crore in FY25. Management has guided for only ~15–20% organic growth in exports and has clarified that it is not aggressively pursuing export-led volume expansion at the cost of profitability. Additionally, unlike India, the Middle East does not operate on a packing contract model due to high manpower costs and visa constraints, which further limits Krishca Strapping Solutions Ltd’s ability to replicate its higher-visibility, service-led domestic business model in the region.

Going forward, Krishca Strapping Solutions Ltd plans to remain selective in exports, participating only where pricing is viable. Management expects incremental cost support from the upcoming Cold Rolling Mill (CRM), which could improve raw material economics and competitiveness in certain export markets. Krishca Strapping Solutions Ltd is also exploring a distribution-led approach in smaller overseas markets such as Bangladesh, Sri Lanka, Africa, Australia, and parts of Europe for low-ticket orders, while retaining direct engagement for large-volume customers. In the US, despite a steep 45% anti-dumping duty, Krishca has already executed ~₹1 Cr of exports with repeat orders, though large-scale US expansion remains constrained by pricing and trade barriers.

Krishca Strapping Solutions Ltd Financial Performance

Krishca Strapping Solutions Ltd has scaled well from FY21 to ₹150 Cr in FY25, This growth has been driven by rapid volume ramp-up in steel strapping, onboarding of large customers, and gradual scaling of packing contracts and exports.. Exports contributed steadily, growing at 33.3% CAGR to ₹23.12 Cr in FY25 (15.5% of sales), though management noted in H1 FY26 investor call that aggressive Chinese/Korean competition subdued volumes, leading to prioritization of domestic markets. Gross profit expanded at 95.6% CAGR to ₹46.9 crore in FY25, with gross margins holding stable at 29-33%, supported by operating leverage, R&D led raw material optimizations (5-6% cost savings from alternate steel grades, as highlighted in FY24 concall).

At the operating level, EBITDA increased from ₹3.2 Cr in FY22 to ₹24.3 Cr in FY25, translating into a ~96% CAGR. EBITDA margins, however, show a mild compression from 19-19.4% in FY23-FY24 to ~16.3% in FY25. This moderation is due to a combination of higher employee costs (employee cost rising to ~4.7% of sales in FY25 from ~2.7% in FY24), increased operating overheads associated with scaling packing contracts, branch expansion and organisational build-out, as well as relatively lower-margin export contribution.

PAT grew from ₹1.5 Cr in FY22 to ₹11.6 Cr in FY25, representing a ~97% CAGR. However, PAT margins declined to ~7.8% in FY25 from ~12-13% in FY23-FY24, primarily due to higher depreciation, higher finance costs and higher tax outgo as the Krishca Strapping Solutions Ltd transitioned into a stable profitability phase. Despite this, absolute profit growth remains healthy, which indicates that the underlying operating engine continues to scale.

Krishca Strapping Solutions Ltd Working Capital, Return ratio and Cash conversion

Krishca Strapping Solutions Ltd working capital intensity has increased sharply with WC days rising to ~174 days in FY25, driven by both higher receivables from packing contracts and a deliberate build-up of inventory. Management has indicated that inventory levels were elevated as they opportunistically stocked steel during periods of lower prices to protect margins and also maintained buffer inventory to support multi-site packing contracts, which require material availability at customer locations. This has also adversely impacted cash conversion, with CFO turning negative in FY24-FY25 despite healthy EBITDA growth, as cash is locked in inventory and receivables. Return ratios have moderated in the near term, with ROCE declining to ~20% in FY25 because of low gross asset turn due to new capacities. Management expects partial normalisation of inventory intensity post backward integration (CRM), which should enable on-demand processing and reduce the need to hold multiple finished-strip variants.

Krishca Strapping Solutions Ltd Comparative Analysis

To understand Krishca Strapping Solutions Ltd investment potential, we have conducted a comprehensive analysis. This analysis includes comparing Krishca Strapping Solutions Ltd to its competitors (peer comparison) on various fundamental parameters and Krishca Strapping Solutions Ltd share performance relative to relevant benchmark and sector indices.

Krishca Strapping Solutions Ltd Peer Comparison

To benchmark Krishca Strapping Solutions Ltd’s performance and positioning, we have compared it with the key unlisted peers in the Indian steel strapping market – Signode India (market leader), Grip Strapping, and Walzen Strips. Since these peers are unlisted, detailed financials are available only up to FY24; hence, the comparison uses FY24 numbers for consistency.

Signode India is the largest player with an estimated topline of ~₹1800 Cr ( approx 900-1000 cr for steel strapping and packaging contract business) and pioneered the packing contract model in India. It operates as a diversified packaging solutions provider (strapping, plastics, automation, contracts), with broader exposure than pure strapping players. Most other competitors generate revenues in the ₹200-400 cr range

Signode India is part of the global Signode Industrial Group (industrial packaging division), which was earlier owned by Illinois Tool Works (ITW, USA) and subsequently acquired by Crown Holdings Inc. from The Carlyle Group in April 2018. Crown is a large global packaging major with a diversified portfolio across consumer and transit packaging, and Signode operates as Crown’s industrial packaging arm, with a broad product suite spanning steel strapping, PET strapping, tools, automation and transit packaging solutions (airbags, edge protectors, etc.). As a result, Signode’s India business benefits from strong parentage, global technology access which is reflected in its scale (FY24 sales ~₹1,800 Cr), superior gross margins (~39%) and stable working capital profile (~50–55 WC days). Importantly, Signode India is not a pure-play steel strapping company only 50% of revenues is derived from steel strapping and packaging contract business

Grip Strapping Technologies (GSTPL) is an associate of the Germany-based Cyklop Group, one of the leading global players in packaging systems and consumables. GSTPL benefits from technical know-how and long operating history of its promoter-management team, with deep domain expertise in packaging machinery and materials. However, at the India level, Grip remains relatively smaller in scale compared to Signode and has structurally lower margins, which reflects a more limited product breadth.

Walzen Strips Pvt. Ltd. (WSPL), part of the Kolkata-based Lyka Group, operates as a domestic, privately-held manufacturer of high-tensile and hardened tempered steel strips, with limited presence beyond steel strapping and job work. Based on publicly available credit rating commentary, the promoter group appears relatively conservative in capital deployment, and the business has not pursued aggressive capacity expansion or product diversification over the years, which is reflected in lower scale, weaker cash flow conversion and periodic non-cooperation remarks in credit reports.

Krishca Strapping Solutions Ltd, while still a young company (operational scale-up largely over the last 4-5 years), has achieved revenue growth and margin metrics that are directionally comparable to global peers at the operating margin level. However, Krishca Strapping Solutions Ltd’s key differentiator is its high-growth phase, reflected in significantly higher CAGR metrics, albeit at the cost of stretched working capital and weak operating cash flow conversion relative to incumbents. Krishca Strapping Solutions Ltd’s financial profile currently reflects a scaling domestic platform, where profitability growth is visible but cash conversion and working capital discipline remain key execution variables.

Why You Should Consider Investing in Krishca Strapping Solutions Ltd ?

Krishca Strapping Solutions Ltd offers some interesting reasons to track closely and to consider investing if one is looking to play India’s steel capex cycle.

Proxy on India’s Steel Capex Supercycle – India is the world’s 2nd largest steel producer (~151 MT crude in FY25) and is targeting 300 MT capacity by 2030 under the National Steel Policy. This implies a sustained 7-10% CAGR in steel production and consumption for the next 5-10 years, driven by infrastructure (Gati Shakti, NIP), housing, automotive, exports, and manufacturing localization. Steel strapping and packaging are non-discretionary consumables tied directly to finished steel output and movement. Krishca Strapping Solutions Ltd sits in the sweet spot of this chain. Every additional tonne of steel produced/consumed requires reliable strapping and packaging. With domestic consumption already at ~150 MT and growing 9-11% YoY, ancillary demand (strapping + contracts) is structurally expanding at similar or higher rates, which provides Krishca Strapping Solutions Ltd with a medium term, high-visibility growth runway without needing to chase new end-markets.

Forward Integration into Total Packaging Solutions – The Indian steel packaging market is rapidly moving toward outsourced end to end contracts (already ~50–60% of volumes), led by integrated players like Signode. Krishca Strapping Solutions Ltd has executed this transition exceptionally well as packing contracts scaled from ₹3.16 cr in FY24 to ₹12.88 cr FY25 and now at ~₹30 cr as on H1 FY26 (~33% of revenue). Packaging contracts lock in strapping offtake for 1-5 years, expand wallet share 3-5x (manpower + tools + maintenance contribute 50-70%), and provide recurring revenue, order-book at ₹180 cr+ as of Nov 2025. Management targets 40-50% revenue contribution from Packaging contracts in 3-4 years, which should improve revenue predictability, reduce cyclicality, and lift blended ROCE as execution matures. This is classic forward integration by leveraging the core product to capture higher-margin services.

High Barriers to Entry – Steel strapping is not a commoditized product. It is safety-critical. A single strap failure on a 10-25 tonne coil can cause fatalities, mill downtime costing lakhs per hour, or massive product damage. This creates an extremely high bar for vendor approval (6-36 months of trials, proven track record, private-sector POs for PSU entry). The market remains oligopolistic (Signode ~49%, Grip/Cyklop ~27.5%, others smaller), with minimal imports risk (1-2%) due to mandatory BIS certification and ~7.5-10% import duties with compliance costs creating an effective ~18-20% landed disadvantage for Chinese material. Krishca Strapping Solutions Ltd has already crossed this moat, it is the only lead-free manufacturer, operates the only fully automated single-line process, and has now entered PSUs (SAIL Bokaro, RINL) after years of private-sector validation. This combination of technical reliability, cost leadership, and credential accumulation makes customer switching very difficult and new entrant success rare.

Diversification into Primary Packaging – Beyond its core steel strapping franchise, Krishca Strapping Solutions Ltd is strategically expanding into complementary primary packaging and preservation products to position itself as a one-stop solution provider for industrial packaging needs. Krishca Strapping Solutions Ltd is investing in the manufacturing and sourcing of desiccants, VCI-based corrosion protection covers, tarpaulins and dunnage air bags. Products that are increasingly critical in steel logistics, export packaging and moisture-sensitive applications. This broadening of the product basket enables Krishca Strapping Solutions Ltd to meaningfully increase its share of wallet with existing customers as procurement increasingly shifts from multiple vendors to integrated solution providers. Over time, this diversification is expected to deepen customer stickiness, improve revenue visibility and support margin resilience, as value-added preservation products typically carry higher realisations and are less commoditised than plain steel strapping.

Backward Integration into Cold Rolling Mill – Krishca Strapping Solutions Ltd is undertaking a meaningful capacity addition through backward integration through the commissioning of a ~60,000 TPA Cold Rolling Mill complex at its Chennai facility (commercial operations targeted by Q1 FY27), which will meaningfully strengthen its competitive moat by lowering input costs through partial captive sourcing. Beyond improving the economics of its core steel strapping business, the CRM enables Krishca Strapping Solutions Ltd to enter higher value-added segments such as precision-gauge specialty steel and select stainless-steel strips which will open a new revenue stream from automotive, engineering and tooling customers who currently rely on imports or premium domestic suppliers. In parallel, through its subsidiary Vajra Alloys, Krishca Strapping Solutions Ltd is selectively entering the super alloys and special steels segment initially targeting commercial and industrial applications (later moving into moving into more critical end-markets over time), which we believe will materially expands the addressable market and provides value migration optionality

What are the Risks of Investing in Krishca Strapping Solutions Ltd ?

Investors need to keep the following risks in mind if they choose to invest into this business. Risks needs to be weighed in combination with the advantages listed above to arrive at a decision that is optimal for your portfolio construct

High Dependency on the Steel Industry – Krishca Strapping Solutions Ltd’s revenue is almost entirely linked to the Indian steel sector (major customers: Tata Steel, JSW Steel, SAIL, Vedanta, APL Apollo, etc.). Any slowdown in steel production, consumption or capex (due to global slowdown, weak infrastructure spending, real estate downturn, or monetary tightening) directly impacts strapping and packaging contract volumes. Steel is a highly cyclical industry, even moderate demand softness can lead to sharp order deferrals or inventory correction at mills, which could impact Krishca Strapping Solutions Ltd’s.

That said, the probability of this risk crystallizing in a severe way over the next 3-5 years appears very low given the current health and structural outlook for the Indian steel industry.

Customer Concentration Risk – A significant portion of Krishca Strapping Solutions Ltd revenue comes from a handful of large steel producers (top 10 account for 50%+ of sales). Any loss of a key contract, reduction in offtake, vendor re-rating, or shift to competitor supply by a major client would have an outsized impact on revenue and profitability. While packing contracts increase stickiness, they are still concentrated among a few large steel plants.

That said, Krishca Strapping Solutions Ltd has steadily reduced this concentration over the years from ~95% top-10 contribution in FY20 to 52% in FY24, and an estimated ~50% in FY25. However, further meaningful reduction beyond ~40-50% is unlikely in the medium term, as the Indian steel industry is inherently concentrated with the top 5-6 producers accounting for ~55-60% of total crude steel output . Majority volumes are dominated by these giants, which limits Krishca Strapping Solutions Ltd’s ability to fully de-risk without sacrificing access to the largest demand pools

Execution Risk with capex – Krishca Strapping Solutions Ltd is undertaking a capex of ₹70 Cr+ for the Cold Rolling Mill (CRM) complex and primary packaging diversification. This represents a substantial commitment relative to the Krishca Strapping Solutions Ltd’s existing gross block of ~₹40 Cr as of FY25.

Any delay in commissioning the CRM, capex overruns, technical challenges in achieving desired quality/grades, or slower-than-planned ramp-up could materially erode the expected cost savings, product expansion, and new revenue streams currently anticipated. Parallel execution risks exist in primary packaging diversification (desiccants, VCI covers, tarpaulins, dunnage airbags,), where the company is investing in manufacturing/sourcing and integration. Although capex here is smaller, risks include integration delays, higher than expected setup costs, slower client adoption for bundled solutions, or quality/market acceptance issues. All of which could dilute near-term performance.

These execution risks are typical for a fast-growing SME undergoing major capex and diversification, but they are critical to monitor through quarterly updates on progress, timelines, and capex utilization. Any meaningful slippage would directly impact the growth and thesis.

The CRM project also introduces material market risk. While the stated strategic intent is backward integration for captive consumption, management has indicated that ~60% of CRM output is targeted for external sales, effectively turning them into a merchant supplier of special steels. This exposes them to cyclicality and pricing volatility in the broader steel market.

Working Capital Intensity from Packing Contracts – As packing contracts scale (target 40-50% of revenue), working capital requirements will increase significantly due to higher receivables (billing cycles ~90 days vs. 45–60 days for standalone strapping) and manpower related advances. This could pressure cash flows and return ratios in the near-to-medium term, especially if contract wins accelerate faster than collections or if customers delay payments (common in PSU contracts).

Liquidity Risk – As a relatively microcap company listed on NSE Emerge (SME segment), Krishca Strapping Solutions Ltd has limited trading liquidity and higher price volatility compared to mainboard stocks. Any negative news, broader market correction can lead to sharp drawdowns, even if fundamentals remain intact.

Export Market Risk – While exports are currently small ( at 9.5% in H1FY26 vs 15% in FY25), aggressive Chinese and Korean competition has already forced Krishca Strapping Solutions Ltd to slow its international push. Export realisations and margins are structurally lower than domestic business, with management indicating EBITDA% of 10-12% in exports vs materially higher margins in the domestic segment. Any renewed strategic push to scale exports could therefore dilute blended margins and expose Krishca Strapping Solutions Ltd to heightened competitive intensity, freight cost volatility and geopolitical/logistics risks. In addition, export volumes are more sensitive to global steel cycles and pricing arbitrage, which may introduce incremental volatility to earnings quality if the export mix increases meaningfully over time.

Promoter led Strategy & Capital allocation risk – Krishca Strapping Solutions Ltd remains a promoter-led and promoter-driven enterprise, with the founder playing a central role in strategy formulation and capital allocation. While the promoter has shown credible execution by scaling the Company from near-zero revenues in FY20 to ~₹151 cr in FY25 and securing Tier-1 customers, his entry into the steel strapping and industrial packaging space was without prior domain experience. This introduces a risk around strategic consistency and capital deployment, particularly in a capital intensive manufacturing context. The direction has shifted multiple times post IPO for example the welding electrode plant and a plan for a steel strapping facility in the Middle East were dropped, while the current focus is on CRM backward integration and primary packaging diversification. Frequent changes in announced initiatives, though common in young companies adapting to markets, raise questions about long term clarity and execution discipline.

Competitive Intensity & Pricing Pressure Risk – Krishca Strapping Solutions Ltd operates in a highly concentrated market dominated by established multinational players such as Signode and Grip, which possess strong customer relationships, global brand and the ability to bundle products and services. As Krishca Strapping Solutions Ltd continues to target incremental market share gains over the medium term, these incumbents may respond through more aggressive pricing or bundled offerings to defend their positions. Such competitive responses could trigger pricing pressure or localised price wars. Which can potentially compress margins and slow the pace of profitable market share expansion. While Krishca Strapping Solutions Ltd’s structurally lower cost base provides some buffer, sustained competitive intensity remains a key risk to monitor.

Krishca Strapping Solutions Ltd Future Outlook

Krishca Strapping Solutions Ltd management guiding for a minimum 25% YoY revenue growth in FY26 (moderated from earlier 40%+ estimates in H1 FY26 concall, reflecting cautious export assumptions and capex ramp-up),revenue growth in the near term will be driven by higher utilisation of the expanded steel strapping capacity, onboarding of new packaging contracts and incremental contribution from primary packaging. In steel strapping, management expects ~20-25% volume growth over the next 1–2 years, driven by increased penetration across Tier-1 and secondary steel mills and gradual migration to higher-tensile grades. With installed capacity of ~30,000 TPA, the strapping business alone has the potential to support ₹300Cr+ of annual revenue at steady-state utilisation, which provides a visible medium-term scaling runway as utilisation moves up from current levels.

Packaging contracts are expected to remain a key growth lever, with management indicating an aspiration for contracts to contribute ~40-50% of consolidated revenue over the next few years which will be supported by multi-year tenders from large steel producers. While this provides revenue visibility, it also structurally increases working capital intensity, making execution and collections key monitorables.

Primary packaging (desiccants, VCI covers, tarpaulins, dunnage air bags) is currently a small but fast-growing vertical. Management has indicated that, with ongoing investments in manufacturing (including desiccants) and broader product rollout, this vertical has the potential to scale to ₹80-100 Cr of annual revenue over the medium term at maturity, supported by cross-selling into the existing steel customer base and higher usage in export packaging and corrosion-sensitive applications. This segment also carries relatively better realisations than plain steel strapping.

The commissioning of the CRM complex is expected to be the next structural growth and margin inflection point. Management has guided that the CRM can support ₹250-350 Cr of incremental revenue potential at steady state, with ~30–40% captive consumption for steel strapping inputs and the balance targeted at external sales of medium/high-carbon and select stainless-steel precision strips to automotive and engineering customers. Over time, backward integration is expected to support margin stability through cost savings and lower inventory intensity, while also creating a new materials-led growth engine beyond packaging.

While the growth narrative is compelling, the strategic roadmap has evolved post-IPO with certain initiatives (welding electrodes and overseas strapping manufacturing in the Middle East) being de-prioritised. This introduces a risk around strategic consistency. Our channel checks suggest that overseas manufacturing in the Middle East remains still in promoter mind.

The key to value creation over FY26-FY28 will be disciplined execution across the current pillars i.e steel strapping scale-up, packaging contract monetisation, primary packaging ramp-up and timely CRM commissioning along with improvement in cash flow conversion as the heavy capex phase tapers.

Krishca Strapping Solutions Ltd Technical Analysis

We consider technical analysis to be a useful input in taking medium-term investment decisions. Many a time price action tends to lead to fundamental developments; this is too important an aspect to be ignored by retail investors who do not have access to management outside of common forums like investor calls & AGM.

At Congruence Advisers we like to consider both the long-term weekly chart and the daily chart to arrive at a view on price action. Combined with our understanding of fundamentals, we usually end up being better placed to be able to judge both the business cycle and the stock cycle. Playing the stock cycle right is extremely important for investors looking to extract significant alpha over the medium term.

Krishca Strapping Solutions Ltd Price charts

Krishca has a listed history of less than 3 years, so taking a look at the weekly chart should give us the entire picture. After consolidating between 200-285 for close to a year between H2 CY23 and H1CY24, the stock went up 70% in a couple of weeks in June 2024 following the H2 FY24 conference call, presumably due to optimism around rapid business growth which was being projected by management. The stock peaked with the broader markets in Sep ‘24, managed to stay above the support level of 285 till Jan ‘25, when it broke in line with a huge downturn in the Indian markets. Since then the stock bounced between the two levels of 200-285 for most of CY25 before breaking the support level of 200 in November 2025, again with a downturn in the Indian markets. It has since been trading in a tight band between 180-200 levels. With the market now paying attention to balance sheets and cash flows, the stock may not move up very swiftly unless cash flows improve significantly and growth returns. While the immediate resistance level of 200 might get taken out with positive H2 FY26 earnings, the next resistance level of 285 will be breached only when the market is convinced that there is clarity on medium term growth and balance sheet health.

Krishca Strapping Solutions Ltd Latest Latest Result, News and Updates

Krishca Strapping Solutions Ltd Quarterly Results

Krishca Strapping Solutions Ltd printed a robust performance in H1FY26 with consolidated total income growing 45.3% YoY to ₹92.78 crore from ₹63.84 crore in H1 FY25. (Standalone results were similar, as there was no material subsidiary contribution yet) Revenue from, while EBITDA surged 57.2% to ₹14.99 crore with margins expanding to 16.2% from 14.95%. Net profit grew 10.2% to ₹5.99 crore, though margins dipped slightly to 6.45% due to higher depreciation and finance costs from ongoing capex.

Operational and strategic updates from the H1FY26 concall

• Packing contracts scaling sharply to ~₹30 Cr (33% of revenue), up significantly YoY, with an order book exceeding ₹180 Cr.

• PSU entry is progressing well, with contributions from SAIL Bokaro and RINL/Vizag Steel contracts.

• The CRM project remains on track, with installation starting in January 2026 and commercial production expected in Q1FY27.

• Primary packaging (desiccants, VCI, tarpaulins, airbags) is ramping up to increase wallet share in contracts.

• Exports remain subdued at >10% due to aggressive Chinese/Korean competition, with management prioritizing domestic growth through contracts and CRM.

• Guidance has been moderated to a minimum 25% YoY revenue growth for the full year (down from earlier 40-50% expectations), with packing contracts targeting 40-50% of total revenue in 3-4 years and CRM delivering margin/ROCE uplift from FY27.

Final Thoughts on Krishca Strapping Solutions Ltd

Krishca Strapping Solutions Ltd is a great example of an enterprising, young promoter with no business background identifying a niche gap in the market and successfully executing to capture a sizable share of the market. What the young promoter has been able to do since founding Krishca Strapping Solutions Ltd in 2017 is commendable. He and his team have managed to put Krishca Strapping Solutions Ltd on the same level as decades old multinationals in the steel strapping industry.

However, as is often the case with young, ambitious promoters who have tasted success, it is easy to overreach. It appears to us that they are trying to do too many things too soon and all at once. Getting into packaging contracts from steel strapping was a natural step. Although ROCE dilutive, it would allow them to capture additional profits that would otherwise go to 3rd party service providers. The entry into plastic packaging items can also be justified owing to the fact that the packaging items are consumables used in steel packaging contracts and the fact that the quantum of capex needed is small (< 10Cr). However, we find it really tough to get behind their backward integration into steel. The capex risk is sizable (The capex itself is 150% of their FY25 gross block), Krishca Strapping Solutions Ltd does generate positive operating cash flows and only 20-40% is backward integration with the rest of the output being exposed to the volatile open market of steel products. We feel this is a risk that could have easily been avoided. The promoter’s persistent vision to set up capacity in the Middle East (Although not in the plans immediately) also feels like a potential overreach to us at this stage and size of their journey.

At the size Krishca Strapping Solutions Ltd is at, a couple of big mis-steps in capital allocation can put the future of the company at risk. While it is true that there can be no big winners without taking big risks, when these risks could potentially be existential, one should be very careful. Their constant search for new avenues of growth also suggests to us that the TAM in their core business of steel strapping may not be very big. We believe that the competitive landscape in the steel strapping segment is not conducive to aggressive market share gain by Krishca Strapping Solutions Ltd. There are well entrenched players who are much older and operate at larger scale compared to Krishca Strapping, this puts a lid on the revenue growth of the business in its core segment.

Krishca Strapping Solutions Ltd may have to go fishing in uncharted waters if it wants to grow aggressively, which is not the ideal setup when investing in microcaps in our opinion. Microcap investing works best when the business in question has already hit upon a reliable growth template that can be replicated over the next 3-5 years at low risk. This unfortunately does not seem to be the case with Krishca Strapping Solutions Ltd, though we may turn out to be wrong in our assessment.

Disclaimer – This note is part of a business research & analysis series on small companies, there is no BUY/SELL recommendation or target price issued as part of this to a general audience. There is no assurance that this stock makes for a good investment, there is no guarantee that this stock will continue/be included in the coverage universe of Congruence Advisers. The note contains some forward-looking statements and insights drawn from the historical results, annual reports and investor presentations; they are to be viewed only within this context and not as a prediction of future performance of the business or the stock covered.

While due care has been taken to ensure that the information here is as accurate as possible, Congruence Advisers disclaims any liability in case of any unintentional inaccuracies.

The content does not constitute investment advice.

They say in the business world that things that take the staircase on the way up can sometimes take the elevator on the way down. Maybe globalization is headed that way, going by the recent events. While each one of us has been a beneficiary of globalization, we may well have to find other trends to benefit from. Especially India which really hasn’t shown leadership in too many segments for a long time now. Even today, our rich cultural heritage, philosophy and wisdom are the areas where the world looks up to us. We have had our share of opportunities over the past 15 years to change this but we somehow manage to underperform our potential every time.

This is one of the big narratives driving the India selloff ever since the market peak of Sep 2024. The FPIs look at India and see a nation whose biggest white collar growth engines are slowing down. We do not rank high on technology leadership , at best we have been good executors at a reasonable price and this now looks ripe for some disruption from the AI wave. We are at least a decade behind on infrastructure development compared to even other emerging nations but have leapfrogged many developed nations in the UBI (Universal basic income) wave due to the new political reality since 2024. The saving grace has been political stability since 2014 which has kept a floor under the valuation multiples due to favorable demographics. But the market cannot be driven by the same old narrative for more than a decade. Those who live outside India aren’t restricted in their options and they will take their money elsewhere if things aren’t on track; that is what appears to be happening now. We need to see a healthy pace of growth and reforms to convert potential into real economic outcomes. Good growth tends generate new narratives by itself.

At the same time, India finds itself in a sweet spot once again. Crude oil price below USD 70 per barrel, low inflation (at least in the domestic scheme of things) and a rising global stature that the world cannot ignore should continue to present enough opportunities in the future. This already reflects in the plethora of trade deals that India has been signing over the past few months. The proposed FTA with the European Union getting successfully concluded will essentially mean that India has a favorable open dialogue with every large economic block in the world – other than the US which is flying in a different orbit. While we were hopeful of a successful conclusion of the US India trade deal in 2025, we now appreciate that deals don’t mean anything if the counterparty cannot be relied upon to keep its word. The way things stand right now, a deal with the US is most likely a meaningless exercise so long as the thinking of the current US regime remains as it is. In a convoluted manner, the antics of the current US regime is pushing the rest of the blocks to align together (even if temporarily) to weather the storm out. This will present many opportunities for India and we sincerely hope that the Govt will make them count.

It is too early in the Q3 earnings season to draw reliable conclusions about numbers but we see encouraging signs in the banking credit growth rising closer to 15% YoY and auto sales numbers continuing their good run post the GST rationalization. It is not that economic data points are all gloomy, just that the geopolitical antics are forcing investors to underweight some positive domestic developments. In this regard, we have just one advice to offer to investors who haven’t seen too many bad market cycles before this – Don’t brood too much over the negative narratives, instead focus on behavioral indicators that have been proven to work reliably in the past. The thing with narratives is that the media will highlight them as a justification for price action, once the price action changes trend the narratives will fade away slowly.

Every bad market cycle has a different set of narratives driving the pessimism but the underlying human psychology that affects price behavior is usually the same. Go back to the March 2023 bottom, the bull run had already run its course for a few months before consensus emerged that we are indeed in a bull run. Go back to the March 2020 COVID bottom and the narrative was in a totally different domain. Every investor was waking up and checking the number of COVID cases before checking market related news. That the US Fed threw a liquidity, QE and fiscal bazooka didn’t matter were all sidelined since the pandemic was the dominant narrative then. The vaccine came only in November but the NIFTY 50 had already made a new ATH by then. Don’t obsess over the narrative and become a budding geopolitical expert in response to what DJT tweets overnight. Instead, focus on a few objective indicators that have reliably proven to be good markers in the past. For example –

1. Number of stocks below the 200 DMA compared to previous corrections

2. Number of stocks that have broken below long term, monthly trend lines with no respite in sight

3. The divergence in the return of NIFTY 50 & SMALL CAP index over the 2Y, 3Y and 5Y periods

In addition to these, ask yourself the following questions

1. Do FPI’s and domestic investors base investing decisions off the same factors?

2. What is your view on the interest rate regime in India for the next 12-18 months?

3. How exposed is your portfolio to the trade war situation?

4. If a stock price is getting beaten down every day without having any direct exposure to the US, what is at play here?

5. If every sell over the past 3 months looks like an excellent decision, what does that tell you about the market?

As an investor you will do well to remember the fundamental behavioral principle – diversity of investor opinion breaks down during market extremes; both in scorching bull runs and burning bear runs. The more clustered investor views become, the higher the probability that most anticipated developments are priced in. It is easy to freeze in the face of a 1% cut to the portfolio daily, but that should not stop you from doing the work needed to keep fine tuning your portfolio.

Before the Battle of Gaugamela started, Alexander told his men – “Conquer your fear and you will conquer death”.

While we don’t wish for his kind of battle recklessness in any investor, taking decisive action in the face of adversity while keeping a good tab on emotions is a trait we must all aspire for. Clarity of time horizon is very important in investing. Management teams that have proven their ability to steer the ship well during a crisis aren’t sitting around praying all the time. They are at work right now, trying to figure out ways to hedge the impact and to keep the business growing through other lines. Many of them will succeed in their efforts though a few may fail.

While we are primarily in the business of taking investment decisions on individual stocks, it is sometimes helpful to zone out and ask if the current geopolitical muck can continue endlessly. The source country of the current geopolitical volatility is a democracy with many checks and balances. It is not an autocracy where one man’s whims and fancies can rule for a long time. With mid terms coming up later this year in the US, political pressures will only rise from here. While individual preference and style may dominate for a few months, the system is mature enough to self correct when needed. Investors today are very deterministic in their outlook that the current muck will continue for 3 more years. We have seen some investors who can’t explain what the GDP but can give a confident 10 min lecture on what drives DJT’s actions right now.

Every single time we have had a situation where FX, bonds and equity all go into a coordinated spin, it has signified a pivot point for India after some more pain. At a time when proven large cap stocks that are delivering good numbers have gotten beaten down 15% from the peak for no apparent reason, it doesn’t make sense to question why a particular stock is going down every day. All we can do is to accept that the market is in the mood to beat down prices for now and separate business trajectory from the stock price trajectory. Every narrative and price action right now screams sell but investing isn’t that simple going by history.

Closer to every market bottom we’ve seen over the past few years, the technical & fundamental analyst are looking at one another hoping that the other knows something that he doesn’t. Below a price though, it is just brave fundamental investors that are willing to buy after having clarity on the investment time horizon. Price action is eventually a slave to business numbers and not the other way around. You get the business trajectory right (with some buffer of error built in), you have a good chance of success over the medium term if you don’t pay up too much. You get in at a low enough price, you sometimes make good money even after getting the business trajectory wrong.

Focus on the primary variable and block noise out to the extent possible.

It may not reduce short term pain but it will set you up to benefit once the tide turns.

As the final segment in this newsletter, please see this chart posted in the public domain by the first investor in Aequitas PMS

The obvious thing is the 34% odd CAGR over the time period – excellent by any yardstick.

But what would it have felt like between 2018 and 2022 ? It was ~4 years of nil return and most likely average CAGR since inception if measured then. Investors would have experienced a drawdown of > 65% from the 2018 peak to the lowest point after the COVID crash. One will have to congratulate not only the fund manager (Siddharth Bhaiya, unfortunately gone too soon) but also the investor for having the conviction to stay put through this 4 year period. During this period you had Marcellus PMS and ASK PMS performing well, it must have been very tempting for the investor to switch out and for the fund manager to change his style. Having options tempts to steer off the course you may have carefully chosen in the past!

Small cap heavy investing is not for the faint hearted. The market will test you every 4-5 years and have you screaming in agony at times. The spectacular returns accrue only to those willing to deal with the pain. Social media today is full of folks who claim they can exit close to the peak and enter near the bottom such that their net worth rarely erodes by a lot. A few of them might be genuine but I’d very surprised if any of them have compounded their equity portfolio at 30% over a decade. Whereas many folks within my investor network (many of them from the valuepickr forum) can easily whip out their trading account statement that shows > 30% p.a. (even if measured today) over more than a decade since they chose to exclusively dabble in the undiscovered stocks universe.

It is in the staying that big money is made in the bets that work out well. Two bets that go on to become 20x+ over 5+ years can significantly change the trajectory of your net worth. While we are not in the business of promising such outlier outcomes in the offerings we run as an RA, we will not be surprised if a handful of our bets do go on to make such returns for the investors who have the mindset (and the luck) to stay put in those outlier stories.

The upcoming few weeks (maybe months) could offer excellent entry points for some stocks that have their business trajectory headed in the right direction while their valuation is headed in the opposite direction.

Please don’t let the current frustration and pessimism stop you from doing the work it takes to find stocks with outlier potential.

Investing isn’t unique this way, health tends to work similarly too. A short, acute period of illness doesn’t depress patients. What depresses them is a sustained period of bad health that starts to affect the way they go about their lives. While a range bound market is in no way as serious an issue as a sustained period of bad health is, the analogy still holds. Doctors tell patients that they need to stay the course and ingrain better habits, they may not pay off immediately but the cumulative effect of doing things right over time does pay off for most people. What most people lack isn’t motivation or optimism, they just lack the discipline to stay put in the face of neutral/negative outcomes.

On a tangent, this is why FIRE is overrated in our book. An individual should have enough productive pursuits in life so that one doesn’t get excessively perturbed by a lack of progress in one aspect. This will be a detailed post for another day though.

The Q2 FY26 earnings season has been a mixed bag. Towards the end of October, one got the feeling that earnings season was going well for the larger businesses. Come November, it has turned into a volatile market for the smaller businesses. Any business that didn’t meet expectations saw a sharp price fall post results. Even those that printed excellent results are finding it tough to sustain gains. The same result in a different market would have seen the higher prices sustain, but not this market. Depending on your timeframe, you will either love this market or hate it. If your horizon is 3 months, you don’t have much incentive to get aggressive yet. If anything you will try to book out at higher levels. If your horizon is 3 years, you will love this market reaction since you still have time to do the grunt work & plan allocation out.

Macro clouds have cleared up a bit since August. US and India are closer to a trade deal than they were then, inflation trajectory in India looks comfortable to the central bank which has clearly become growth focused with a slew of lending norm easing. The festive season appears to have gone well post the GST cut and there are early signs of better consumer demand in H2. While the GST rationalization could lead to some pricing dislocation in Q3, the market will look past this if the view on medium term demand is healthy. As they say, a bull market has to climb a wall of worry. Indian equity market has been climbing multiple worries for many months now, especially in the benchmark NIFTY 50 which looks interestingly poised right now.

This is just on the back of domestic liquidity with limited support from the FPIs so far. Once the FPI flows turn positive, one should not be surprised if the trend enters a blue sky mode. That doesn’t mean that the entire market is doing equally well. The weekly chart indicates that the BSE SMALL CAP index is much weaker than the NIFTY 50 as of now, though the trend there has gotten slightly better too.

Experienced investors know well that outsized gains from a stock need multiple things to work together – sector tailwinds, good earnings growth and a fresh narrative that can lead to a tangible & sustained multiple rerating. Just as rerating is a reality, so is multiple derating. Many themes that ran brilliantly till July 2024 aren’t seeing the same investor enthusiasm today, even if the the numbers have been good for some of them. It isn’t just a fickle market that drives this, there has also been a tangible shift in the ground reality. The freebie driven election culture that has significantly picked up traction since June 2024 is taking capital away from a few areas that were the beneficiary till then. Governments across the world have limited resources and are highly indebted, higher spending in one area will mean lower spending in another.

The erstwhile UPA Govt went heavy on NREGA, social spending and Food Security post the 2008 GFC. Leading stocks in core sectors like Infra & Power reclaimed their 2008 highs in 2010 and then fell into a long bear market once investors realized that the ground reality in terms of Govt spending and priorities had shifted conclusively. While the current Govt is still prioritizing core sector spending, their hands are tied by the new electoral reality since 2024. Reading from the Govt actions, consumption revival has emerged as a bigger priority for them that has resulted in a front loaded rate cut, Income tax changes & GST rationalization since Feb 2025. The geopolitical switches also indicate that India will need to have a stronger ingrown economy that is immune to the mood swings of the West. Some of the big beneficiaries of this are likely to emerge from sectors like consumer discretionary, electronic manufacturing & defense. While a pickup in broader consumer spending is awaited, the other two sectors are already firing on all cylinders if one looks at the quarterly results & order books of the listed companies.

Those who were set in their ways and stuck to the themes that worked well prior to 2021 have seen a torrid time ever since. Reluctance to have an open mind and observe what was changing on the ground led to significant opportunity losses for many fund managers & investors. Investors should be perpetual information assimilation machines and always keep an eye out where the delta change is maximum in terms of growth outlook & margins. Breadth matters much more than depth for those with a medium term horizon. There is only a limited amount of incremental insight that even an excellent analyst can generate in businesses that have good disclosures and disseminate data in a timely manner. For most investors, focus on breadth in a market pivot year like CY25 may serve them better than an obsessive focus over a limited set of businesses. Ideally one should be spending an hour daily on browsing through all results during quarterly earnings season. One will be pleasantly surprised at the number of businesses that are delivering good earnings that one has no clue about.

Investors will also need to look past the superficial narratives in the emerging sectors. One of the current hot themes – data centers is nothing new or flashy. I remember bidding for a total outsourcing deal in my core banking salesman days that involved setting up a DC/DR (data center/disaster recovery) infrastructure. The unit economics of this scope was so inferior compared to the services bit that we were happy to subcontract this piece to a vendor and save ourselves the headache. Building a DC needs civil construction work, electro mechanical plumbing work, HVAC, setting up power supply components & substations, procuring servers, establishing a NOC (network operations center) and having a 24/7 staff ready to monitor & troubleshoot things when needed. Extremely detail oriented, ops heavy work that wasn’t going to be very remunerative. We could make more money reselling Oracle licenses and IBM WebSphere licenses than we could in managing the data center. Don’t let a superficial narrative lead you into areas that aren’t as lucrative on the ground. Our current view is that the data center theme should be played through proxies that stand to benefit without taking balance sheet risks rather than those who are putting in upfront capital. Any business model where one needs to make upfront investment into a set of technology components that can depreciate fast and the unit economics can turn for the worse over the project period is fraught with risk.

What this means for investors is that we need to have an eye open for the themes that are catching the market’s fancy but also have the ability to drill down into core business fundamentals. Not every catchy theme will be worth investing into, especially if you have a negative cash flow structure in the first few years following upfront investments. The list of negative criteria is of paramount importance in this situation. Else we run the risk of chasing fancy themes that will be set up for failure in some time due to a combination of high valuation & depreciating unit economics. The funny aspect of quant investing is that all such stories will show up in momentum driven portfolios at the exact same time, things eventually ugly once the music stops for investors who couldn’t take a timely exit.

Cast your net wide and keep pruning exposure to businesses that aren’t able to execute well – this could be the optimal approach for investors who tend to lose patience within a year and don’t have differential insights to begin with. Accepting our own constraints and limitations can prevent us from making large mistakes.

From here we will be moving to a newsletter every two months. By the time the next newsletter is due, we will hopefully be in a market that has made up it’s mind on which way it is headed.

As has been the case with previous market pivots, if your recent picks have been doing better compared to the legacy ones, it is time to get more active and pursue an optimal amount of portfolio churn. It has been a very productive period for business research over the past few months, we have enough stocks in the pipeline to be able to execute pivots when needed.

Amongst all of these headlines news and theories, the recent Q1 GDP number in India has surprised many and disappointed a few at the same time. Nominal GDP growth of 8.8% is well under par and below the Budget math for FY26. Real GDP growth of 7.85% is propped up by benign inflation, while PFCE continues to struggle even on a low base. The GST rationalization announcement by the PM on August 15 may put a spanner in consumer spending till the rate finalization materializes. No Indian consumer will want to make big ticket purchases with the prospect of a pricing change looming, especially one for the better. We hope that the policy makers make up their mind soon, else we might see a dip in consumer spending brought about inadvertently.

Over the past 6 months, we have seen three massive policy moves in India –

1. Income Tax change in the 2025 Budget that puts an annual salary of INR 12L outside the tax regime

2. Front loaded rate cuts by the RBI when they weren’t under any great pressure to cut

3. GST rationalization with the intent of giving indirect tax relief to consumers

We see these changes as an “all in” effort by the Govt and the central bank to spur domestic consumption out of the three year lull since 2022. While the rural economy buoyancy is starting to make the news and showing up in healthier 2W sales numbers, the urban market recovery has been very category and channel specific. FMCG players have spoken about better times ahead in the Q1 earnings commentary but the entire hope seems to be built on a good H2. Many discretionary categories are still ailing, while a few like travel & hotels are doing well. India is primarily a services economy that needs private consumption to fire for the GDP trend to print a healthy number.

With Govt capex spending projected to moderate to 10-12% YoY growth as per Budget math, GFCF alone may not be able to do the heavy lifting any more. Government fiscal math may get constrained by handout spending, with the GST & Income tax rationalization further imposing restrictions. One doesn’t need to do detailed macroeconomic math to realize that the Govt may need to bring back focus on divestments to make up for the shortfall in FY26 and FY27. The 10 year G-sec YTM has risen from 6.15% odd to 6.62% in almost no time after a rating upgrade for the country! When in doubt about fiscal math just look at the USD-INR and the 10 year G-sec yield, they usually tell the story much better than anything else. Throw in the sustained FPI selling of ~47k Cr a month over July and August and you’ll notice that all three classes in India – headline equity, government debt and the INR have had a tough couple of months. Resonance in all three classes has signaled pivot points in the past, we’ll see if this time will be different in a few months time.

How has the broader market been faring in the meanwhile? This table should make this very clear

The headline indices are masking the pain in the broader market, unless you’ve been living under a rock you would have already felt this in your portfolio. This has been the trend in every reset/pivot year in India that has been occurring every 3-4 years, ever since the 2008 GFC reset. The longer this continues, the louder the passive investing voice will become. And rightly so, since passive investing looks like the best approach after every such STOP cycle in India (we’ve been writing about the START STOP nature of the Indian market for some years now). The natural outcome of this trend is that equity MF as a category does better than PMS and AIF on an average during such pivot periods. The same rules that make equity mutual funds appear inefficient during a bull run make capital preservation much easier during a falling/sideways market. From an allocation point of view, index funds & equity mutual funds have a place in the portfolio for this very reason. Anything that can provide a semblance of stability during volatile times enhances the staying power of investors, often underrated in the search for alpha.

The good news is that this tug of war between passive/active investing and MF/PMS performance tends to average out over a 4-5 year period. The bad news is that most investors will lose patience and end up chasing performance with a lag, only to end up with average outcomes over a 5 year cycle. The other notable fragility within the direct equity focused retail & affluent investor community right now is that the best narrative gets disproportionate eyeballs and flows. A few stocks that looked like a home run till February are struggling right now as investors realize that narrative is slave to macroeconomics, policy and more importantly, earnings.

The best performing stocks within our Emerging Business research offering right now are from pockets that had a lot of uncertainty going into Q3 earnings season, they surely didn’t look like they would be the portfolio leaders in a few months. Which is why we wanted to start on a conservative note (high cash allocation until June) with a balanced allocation rather than a concentrated one. We believe that a concentrated portfolio is usually the outcome and may not be the best starting point by itself. A balanced start makes allowance for a few macro shocks and judgement lapses which can set you back by a lot in a heavily concentrated portfolio. Very few investors can stay calm in the face of a 30% fall in a 10% allocation stock.

On the other hand, our recent additions to the Flexicap portfolio are doing far better than the legacy ones on an average. Which we see as an input from the market that we need to get more active on this front through this pivot year. We’ve had a larger market cap bias in the recent additions and this is clearly one tangible factor. The post COVID run has trained investors to disregard most larger stocks (market cap > 25,000 Cr) in favor of smaller ones, if we were to make a general observation. Who is to say that the next run won’t be led by the larger stocks? Especially if GDP growth turns in worse than anticipated? Any one who has invested through the 2018-21 period will know exactly what we are referring to. It is important to keep an open mind rather than be deterministic on how things can turn out from here.

H2 of this financial year is a very important milestone for India. We will hopefully see better growth and better earnings with a resurgence in consumption across the board. If we do not, the market will take more time to build conviction on current prices. Of course, lower rates in India and the developed world will help with valuation. With fixed income yields being low and the duration trade turning very volatile, growth assets like equity will continue to be in favor. SIP inflows have only been getting stronger which indicates that regular allocation to the equity market has become a habit for the younger folks today. This can set up the Indian equity market for good times in the coming years, if only the economy manages to deliver healthy numbers on the back of recent policy actions.

Equity investors will need to stay patient till the next bout of FPI inflows materialize. At the risk of being repetitive, the Indian equity market is most sensitive to a directional change in the FPI flows. The sixth positive month may not move the needle much but the first positive month usually moves the needle by 4-5%. One whole year of liquid fund returns can be delivered by the NIFTY 50 within one single month when things align. This non-linear nature of the equity market is what creates the window of opportunity for winners and losers, else every equity investor would go home with 12% p.a. over a 10 year period.

The bane of the investing profession is that fund inflows peak when the ability of the fund manager to deliver alpha is the least and vice versa. We don’t see this going away anytime soon. If one has signed up for this career, this is the ground reality that one needs to become better at managing.

Hopefully we will see better days in the equity market at some point in FY26. Better days tend to begin when least expected, we will see if this time will be any different.

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A lot has happened in the market recently. It is easy to fill paragraphs on the market action since April but it won’t get us anywhere. Market commentary with the benefit of hindsight is easy, forward looking commentary and decision making will always look challenging. In this newsletter we will instead pen down our thoughts on a couple of factors that every investor will need to think deeply about.

What is more important – clarity on the time horizon or clarity on the exit event?

Sounds simple but the implications are deep. If I look back at every single BUY of mine since 2016 (well before I branched out into managing money for others), every single one has made money; and every single stock would have beaten the FD return handsomely had I held through. But the strike rate of execution dips to below 75% when I look at the data. Why?

When you hop onto a story that is not yet priced for the positive developments you think will play out, you need tremendous clarity on the time horizon. A good quality business that is going through a phase of muted demand can stay deflated for many quarters before your thesis plays out. There is no point in getting frustrated that the price isn’t moving when your approach was to take the position before the rest of the market figures it out. In such cases, you need tremendous clarity on what your time horizon is so that short term paper losses will not shake you out. Clearly you have your eye on the medium term here, hence the short term shouldn’t matter too much.

When you hop onto a story where the positives are already priced in and with the expectation of > 25% CAGR, you need tremendous clarity on when you want to take your profits home. For most stocks and sectors are cyclical, just that the timeframe of the cycle varies. If you have hopped onto a stock that is already in Stage 2 and has printed good numbers for some quarters, you need well defined exit rules so that you can take your money home in a proactive way. Else you run the risk of being a medium term investor in a stock that can peak out in the near future. In such cases, you need to be clear about the EXIT event/valuation rather than the time horizon of the investment. This is one of those situations where you might be dealing with risk in the medium term while the short term looks much smoother.

Ideally, one should have clarity on both – time horizon and the exit criteria but real life rarely works that way. Else every good investor would operate at > 90% strike rate. I got the thesis right on TCPL Packaging in 2016 but did not have the exit criteria clear when the business started printing lower EBITDA margin once the paper cycle started gyrating. I had loaded up on the stock after the business printed good numbers and the valuation had inched up. I kept focusing on the time horizon while I should have been obsessed over the exit criteria. The final outcome was that the stock went up 6x after I had booked out at a hygienic profit and after having stayed invested for ~5 years. Opportunity cost gets to you psychologically, especially when you are having a below average performance phase.

We recently added two stocks to the Emerging Business portfolio where the FY25 numbers were muted but we believe that numbers can pick up significantly some time in FY26/FY27. In such cases, we won’t get worked up over short term gyrations or fundamentals since we know that the thesis can play out only beyond 18 months. On the other hand some of the stocks have started printing much better numbers than we anticipated and the valuation multiple is on a tear away rally right now. In these stocks, we are working towards clarity on the exit event/multiple rather than caring too much about the initial time horizon. Horses for courses – we’ll see if we can execute well this time and not make the mistakes we made in the past.

Stocks that show a lot of momentum in the short term can have looming risks over the medium term (due to valuation and mean reversion) while some other stocks can be inverted in their risk-return profile. When you allow an expensive stock to get more expensive, you are prioritizing the short term over the medium term. When you prune an expensive stock and allocate that capital to a beaten down name, you are optimizing for the medium term while leaving money on the table in the short term. Managing this paradox at the portfolio level without having clarity on the investment horizon can lead to mistakes.

With valuation multiples creeping up steadily, do you want to merge into the market view or diverge?

This will turn out to be one hell of an important decision for anyone managing money today. Especially if they have been investors in the pre 2017 era where good businesses could be bought for < 20 TTM PE most of the time.

To reiterate what we have said in many of our notes in the past, India has been a start stop market. The trend since 2010 is that we have one good year of > 30% return at the index level followed by a couple of below average/bad years. This trend is undergoing a steady change though, as the baton of ownership is being passed from the FPI’s to domestic funds and investors. SIP flows have increased from 8,400 Cr a month in 2018 to 25,000 Cr+ today and retail market participation continues to strengthen every year. India is already having its 401K moment, we’ve been speaking about this from 2019 and believe that it is already here in a big way. If this trend gets further cemented, the Indian market may finally break out of its start stop nature and actually give us a secular bull run, though at much lower index return compared to the 2003-08 run.

Even at a headline index return of 11-12% p.a. from here, if the common knowledge gets cemented with the thought that the Indian equity market reliably goes up every year, an extended good run can materialize. Our current thinking is that there is a good possibility that the Indian market can build up into an eventual bubble over the next 5-10 years. It also doesn’t help that the overwhelming majority of Indian public market investors live in an echo chamber, India is all we know and track; hence we cannot benchmark the Indian equity market to the equity market in other geos.

If you believe that equity market valuation multiples are much higher than warranted, where will you deploy your money? The repo rate is already at 5.5%, fixed income returns just don’t attract most people. And real estate prices are already going crazy in pockets. A semi premium 1900 sq ft apartment at Bangalore goes for ~3 Cr today before registration & stamp duty kick in. It is not that only equity prices are high, looks like other asset classes too don’t offer good bargains in India as of date.

If so, do you continue to participate in the market as valuation multiple keeps creeping higher? We’ve seen some of our holdings go from 20x forward PE to 35x Forward PE over the past 7 years. Do you now rotate into the more reasonably valued (but unproven) businesses or do you continue to pay a steep premium for the proven ones? Or do you sit by the sidelines and just watch for years?

Whatever be your view, if you are beyond the age of 35 years right now you might want to make the most of this phase before the tide turns. For when it turns, we can get stuck with a market that goes nowhere for a long time. See the chart of the DJIA in the US between 1973 and 1982, no reason why this can’t happen in India too. One needs to think deeply about asset allocation if equity market valuation multiples keep steadily creeping up this way. The recent market correction has pruned the market froth to a respectable extent. The longer the market continues to trade below its previous ATH, more the comfort you can draw that the market is subject to gravity and hence isn’t irrational yet.

What looked like a lost year for the broader markets has turned around within a very short span of time since April. It doesn’t help to be deterministic when the structure of the market (and the world in general) is changing to a new order. It is time to keep an open mind and stay away from perennial bulls and bears.

As the primary ownership of the Indian equity market pivots from hot money (FPI) to more reliable money (domestic funds), one should not be surprised if the start stop nature of the Indian market changes into a more steady one. Corrections will obviously happen along the way but if both growth and domestic liquidity continue to be in favor, there is no point being too pessimistic or deterministic.

One of the more interesting themes that can play out over the next few years is the resurgence of spending & self reliance in the stronger European economies. Some of the moves of the current US regime are drilling home concepts that were forgotten for more than 25 years. If one is looking to diversify outside of the Indian equity market, this could be one of the interesting places to explore.

First up – What is spooking the market?

1. Direct impact of Trump tariffs on Indian businesses

2. Direct impact of the tariffs on the US economy, growth & demand

3. Redefining of trade & business equations, dislocations in supply chain and the fallout of these

Most of you would have read/heard enough content by now on how (1) is the easier part to address. The Indian Govt has been working behind the scenes for some time now, preparing for this expected salvo from the US. At some point of time, a deal will be announced that should be able to quantify the direct impact. (2) is the tougher part to assess, one can only react to whatever is the outcome. Thankfully, India has a vibrant domestic consumption market that doesn’t rely on external factors to a great extent. (3) will be the most interesting part of the current puzzle since dislocations tend to generate opportunities and a new set of winners. Before you get too deterministic about anything, do remember that there were murmurs of the death of the Indian IT Services industry in 1999 once the Y2K problem was addressed.

Adversity brings with it opportunity, if only one is willing and able to focus on it. There are some positive developments that are happening in front of our eyes, if only we take our eyes off Trump for a few hours. Just to reiterate some of these –

1. A supportive stance from RBI after staying hawkish for many quarters. Both on liquidity & lending norms

2. OPEC has announced supply enhancement, in the process surprising many. Crude is now in the 60’s and lends a much needed supporting hand to both the fiscal & trade math of India. You can pull out the Oil spending bill of India for FY24, FY25 and assess how much of saving can accrue if Brent Crude stays below USD 70 per bbl through FY26

3. India manufacturing PMI numbers getting better sequentially after the lull of H1 FY25

4. Personal income tax rate cut should start putting more money in the hands of salaried employees from April end

5. Expected interest rate cuts by the RBI should reduce the domestic cost of capital. The pace of rate cuts could be quicker than initially anticipated

6. Trump is pushing for lower rates in the US, if he succeeds it can support asset prices once the current panic is done

7. India is relatively better placed compared to other Asian peers, China will face the brunt of Trump’s actions and will have it’s hands busy for many months trying to deal with the fallout

The biggest point to note is that even those who are secularly bearish on equities (Indian) right now still believe that India will grow out of the current situation, it is just a matter of time. This domestic capital is edgy, nervous capital that will look for reasons to hop onto the equities train the moment they “feel comfortable”. It is perplexing that many of them believe they can hop off and hop on in a timely manner though every data point out there points to the contrary. Nevertheless, it is what it is and it makes the market an interesting beast at any point of time. No one is worried yet about the India story getting derailed due to the recent developments.

Of course, there are worries. The journey is unlikely to be smooth or linear from here. What has kept the equity market up since the 2008 GFC is a ready supply of liquidity and low rates from central banks. Every time there was uncertainty on the horizon, central banks would pump in liquidity and kick the can down the road. The biggest worry that has emerged in the past 10 days is that there might be no more kicking the can down the road. Which means there will have to be pain upfront in dealing with the situation before things stabilize. Which the current US regime has been very vocal about. With limited possibility of liquidity infusion from the US Fed and the threat of unsustainable debt levels continuing to loom, valuation multiples can see a steady compression for years. The “25 PE is reasonable” narrative that we have taken for granted in India since 2016 has taken a dent already. Those who were in the markets prior to 2016 will recollect that the “30 PE stocks” of today were just “20 PE stocks” then. Mean reversion of valuation multiples can put a lid on equity returns, even if earnings growth is healthy over the next 2-3 years. Domestic cost of capital is still higher compared to the cost of capital for FPI investors; if the ownership structure of listed India further pivots away from the FPI’s, this factor can steadily creep in without us realizing the effect of this initially.

One of the positive risks right now is that the US regime can play mind games and make announcements out of the blue. Every psychologist will tell you that bullies tend to let up a bit once they see that others are acknowledging their dominance. One single statement from the White House that hints at a much saner tariff rollout schedule can send shorts scampering in no time. When bearishness is at its peak, short squeezes are common – even if they aren’t long lasting. There are so many variables at play right now that it is futile to get deterministic in either direction. Go back to the 2010-20 era when the market would flip on the basis of one single word in the central bank minutes. The US Fed would change “considerable” to “significant” and the market would swing 5%. Just that the actors have now changed – Govt policies have taken centerstage with central banks relegated to being sidekicks.

My personal take is that the current US regime is very motivated and they believe in what they are doing. They tried to impeach, attack and even take out Trump but he came back stronger every time. He is probably way smarter than we give him credit for and has been consistent in his thoughts for more than 3 decades now. One of the subtle things I understood as a wealth manager for the super rich in India is that successful men past the age of 70 don’t give a rats ass about other people’s opinions. They only care about their ideology and their legacy, if such a man is on a mission he would rather perish than change his world view. The next 3 years should be very interesting as Trump pushes further on his agenda to change how the world’s affairs are conducted. India is in a good position to extract mileage from this, I only hope our Governments are smart about this and capitalize on the many opportunities that are coming up in the future.

It should not be surprising if investors start making a beeline for domestic heavy business models like lending & consumption from here. Both the sectors have their own challenges but any positive news or better than anticipated numbers can send stocks higher in the due course. The time to do focused work and be ready is now. Ideally you should already know what you want to buy in each sector the moment uncertainty cools off a bit.

Ideally, one should have created some buffer in the portfolio through the past 6 months. Cash during such times gives you dry powder, so that you do not have to sell when the price isn’t in your favor. Asset allocation is much easier to do a decent job at than portfolio management, that should be the starting point for investors rather than trying to do sector and stock rotation based on Relative Strength. Choose endeavors where the base rate of success is high. Sector and stock rotation are easier said than done, just ask the junta who saw high RS in IT stocks till December and loaded up there.

One of the interesting aspects of the current bout of selling is that some stocks where Q4 earnings are likely to be excellent are being sold off too. Just imagine what can happen if the market gets some comfort on the tariff angle by the time Q4 results come in and these stock prints a 40%+ YoY growth number. One must zone out today before taking impulsive decisions just because prices are falling. After making sure that you can stay the course that is. Don’t make lofty long term plans without ensuring survival over the short term.

By the time this saga is digested and the market is stable, many of us would have made a set of avoidable mistakes all over again. Most of them are caused by staring at the screen too much and by counting losses multiple times in a day. Unless you are a professional money manager no one cares if you beat the index or underperformed it. Just get the basics right and keep calibrating to the market as and when new information becomes available. If one were to keep score and stare at dashboards on a weekly basis, most things would break down – personal relationships, entrepreneurship & real estate investing included.

Before you get excessively bearish on equities, do remember that the richest people all got there through equity ownership. These were the largest shareholders in a business that ended up doing well over a decade or so (just that they were also operating managers). Their operating skills were clearly great but what put an insane amount of money in their bank account was their ability to stay the course with a high chunk of their net worth tied to a business that was executing well. This is one of the basics we tend to forget when the market is falling 2-3% every day. We foolishly believe that there is always a far better deal out there and that we are good enough to keep finding such deals regularly with a high strike rate.

Do remember that when you keep jumping ship in the face of adversity, you are telling yourself in a subtle manner that you do not have enough belief in your own judgement. This doesn’t mean that one should not calibrate to a changing market but selling 15/20 stocks in every bear run is not justified most of the time. Just get your asset allocation right, ensure that you can have a peaceful sleep and trust the process that has been proven to work across cycles. Every serious market correction will always boil down to the same thought process, even if each market correction is caused by a different set of variables. Same higher principles at work, just that the cause is different. In such times a game theory lens is a useful tool to have. While many bottom up stock pickers hate focusing too much on macros because it rarely results in tangible action items, one should not be guilty of drilling deep without paying attention to the topography in which you are operating.

The rest of April should be very entertaining. Keep an open mind and resist the temptation to get deterministic on how things *will* play out. You may watch YouTube videos and read opinion columns but do remember that they too are only guesstimating. Go back to all of the possibilities discussed in March and April 2020 and ask yourself how many of them actually played out. Speaking about possibilities is the easier part, putting your money where your mouth is will always be tough. Don’t let someone’s quest to be seen as an intellectual or some bloke’s engagement farming strategy affect your investing choices. Let your actions be measured & calibrated, not knee jerk in nature.

The battle isn’t just external but internal as well for investors. That’s what makes a 20%+ CAGR over 10 years so challenging for most investors. Many have the IQ but few have the stomach. Emotional restraint and control are an integral part of investing, especially closer to market peaks and troughs.

As they say, there are times when the market does nothing and there are other times when the market does a lot. CY2025 clearly falls into the latter category as of now, broader market indices are down > 20% from their 2024 peak, most stocks are down > 30% from their recent peak & many counters are now looking reasonably priced, if not cheap. Some of the things we expected to play out in H1 CY25 (covered in this session) have already played out, a tad quicker than expected. Portfolios and investor confidence have been beaten black and blue within a short span of time. Most of us are well aware of the many issues plaguing the Indian market now – USD strength till recently, Trump tariffs, slowing GDP growth in India, FPI selling for many months now and many more.

But now is not the time to focus on the headwinds and look for reasons to not do anything. Now is the time to start wearing the optimist hat every now and then and think of the positives that have been happening –

1. Reversal of the DXY Index trend and moderation of crude oil price

2. Resumption of Govt spending from December 2024, channel checks indicate orders picking up

3. Union Budget finally focusing on reviving domestic consumption through personal Income tax regime change

4. New RBI regime easing liquidity and starting to relax lending norms

5. Inflation starting to ease, giving RBI more ammunition to shore up growth

6. Equity valuation now back to a reasonable range, a good chunk of the froth has gone out

7. SIP inflows continuing to show strength, retail inflows have been more resilient than expected so far

While the near term pain needs to managed prudently, there are enough factors at play that can get India out of cyclical growth low it has gotten into. We may finally be past the point where the risk/reward ratio for looking one year out and thinking positively is significantly high. This isn’t to say that the current correction is done, just that we are at a phase where allocating incremental money to the equity market offers a good probability of a good outcome. We must also keep reminding ourselves that corporate India balance sheet is very healthy and that whatever growth is happening now is on the back of below average credit growth. India domestic macro risk is clearly not high, the market is worried more about the fallout of global macro developments than about domestic developments now.

The thing with FPI flows is that they are cyclical. Sometimes FPI outflows persist for 7-8 months (as seen in 2022) but they eventually mean revert. We keep going back to this observation of ours again and again – the benchmark Indian index is most sensitive to a delta change in FPI flows. It reacts significantly in pivot & trend reversal months, the first month of positive (and negative) months move the needle for the NIFTY 50. As has been the case in the past, whenever FPI flows turn positive the first 5% of the NIFTY 50 will surprise many investors. However, there is no magic wand that allows one to predict when this could happen. As a medium term investor, one can only build positions during bad times and wait it out for the eventual mean reversion to happen.

Coming to stocks and sectors from the din of macro news and FPI inflows. The IT Services index has taken a solid beating after the relative outperformance starting June 2024. This should drill home an important point – defensives cannot operate as defensives unless earnings growth holds up at normal rates. IT Services & FMCG have traditionally been defensive bets during times of volatility because investors would bet on earnings growth of 8-10% YoY while the rest of the market slowed down. We are no longer in a regime where investors can make those bets with confidence on these indices. Everything is a function of time and place in investing, there are no everlasting Gospels that can work 100% of the time.

We have always believed that betting based on Relative Strength is useless in the early phases of a market correction. For what is strong today will eventually fold. Till December 2024 small caps were holding up better than the benchmark index, but when the eventual crack came it got ugly. Relative Strength as a tool should ideally be used after all pockets have reacted and the mood turns pessimistic. In our opinion, the week of February 17-21 was the first indication that value buying has started to emerge. Today, we are back to using Relative Strength as a screening tool. Fundamental investors take time to discover the next potential set of winners. Once they identify a stock that is likely to deliver good (and disproportionate to expectations) numbers over the next 2-3 quarters, they broad base their research within adjacent pockets to see if there is a trend. This buying is what creates the “bottom formation patterns in some stocks “Relative Strength” that shows up in chart scans. Every good technical analyst understands this intuitively.

For this knowledge to percolate down to the broader investing community, it takes a few months at the very least. For this reason, there is no incentive to rush into buy when a bear run is underway. Strong stocks and themes will reveal themselves with time, and then often given you multiple opportunities to buy at reasonable price. Investors often end up deploying entire cash before this market pivot has fully matured, only to be forced to reverse their positions later. Patience is a virtue during most deep corrections. Sometimes we just need to be right, we don’t need to be very early. Pulling the trigger quickly is a bull market induced mistake that one needs to consciously steer clear of once a market correction begins.

For the first time in many years (almost a decade), consumer stories are trading below lofty valuation multiples. Today we have market leaders trading at ~45x trailing PE, some emerging businesses here are trading at ~32x trailing PE. While these aren’t yet cheap in an absolute sense, this is the cheapest they have traded in more than 7 years now. Investors willing to do detailed fundamental work today have a plethora of options to choose from across sectors. While prices may get worse before they eventually get better, the time to get busy with research is now.

We are working with simple rules when it comes to building incremental positions –

1. Does the business offer visibility of good earnings growth over the next 12-18 months?

2. Do we need to go beyond FY27E earnings to justify the current market cap of the business?

3. Do we have a good breadth of ideas or are we funneling money into the same limited set of stocks?

4. Are we operating with first principles and prioritizing concepts like balance sheet risk, cash flows & capital efficiency or not?

5. Do we have enough conviction in our work to be able to buy stocks when we feel like idiots for buying?

6. Are we evaluating relative attractiveness of ideas before buying or not?

We reckon that if we continue to do these basics right, we should come out of this correction with a portfolio that can get the job done over the next 2-3 years. We obviously won’t be the first set of buyers in many stocks but we have enough confidence in our ability to calibrate and navigate into the right pockets over time, once the market reveals its hand.

The next 2-3 months could be a constructive time to build medium term equity portfolios, especially in the small cap segment. For all the gyan we see in the traditional media, we still don’t see too many large caps that are cheap. The bulk of the opportunities are still emerging from the small cap segment for us. So long as India doesn’t go to a low GDP regime, some businesses can continue to hit a home run in India.

Are we good enough and focused enough to identify some of these and stay the course for the next 3-5 years?

That’s the question every alpha generation driven active investor needs to ask oneself today.

In Aug 2023, I was one of the speakers at an offline investment summit. During the many breaks one gets during such investment summits, one can go around interacting with participants and other speakers who were presenting. One of the most discussed business groups at this summit was the APL Apollo Group. A bulk of the junta there (and many PMS funds) had loaded up on this stock through H1FY24 with the expectation that the new Raipur plant could deliver wonders over the next 12 months and spike earnings by more than 35-40%. Not just that, junta was fully loaded up on SG Finserv and SG Mart too. I distinctly remember taking a long walk with one of the other speakers there and we both agreed that the stock had priced in too much too soon. Though we weren’t too hopeful of near term performance, our (Congruence Advisers) conviction in the business for the next 3-5 years ensured that we stayed put (after communicating to our subscriber base that fair value was much lower and closer to 1350 per share than the going price of 1700 then).

What’s happened since then? Here you go….

(Disclosure: APL Apollo Tubes continues to be part of our portfolio, we added a bit more around 1350-1400 a few months ago)

Anecdotal observations and behavioral observations are good enough to get the job sometimes. That said, we believe that the stock could be poised for more interesting times over the next 12-18 months once it emerges out of the pattern at play now.

Another anecdotal observation. In August of 2024 I attended an investment summit where we had 20 speakers presenting on an idea each. Of the 20 ideas presented, 5 were from the lending sector (four NBFC’s and one bank). In the more recent online summit of December 2024, 20 ideas were covered on the same day. Not a single one was from the lending sector. Over the past 6 months most lenders have been beaten to a pulp, including the so called low risk, high quality HFC’s. While the stress in the microfinance, low ticket unsecured retail loans and credit cards are evident, does it warrant every lender getting beaten down irrespective of the valuation & exposure to these segments?

Think about that for a minute before you read on.

The RBI has done a reset of their growth projections for FY25. The Q2 number was expected to be below average but it turned out to be a howler. To the extent that two of the MPC members stuck their necks out in favor of a rate cut in December, after using some strong language (read minutes of the MPC here); specifically read the commentary of Dr. Nagesh Kumar and Prof Ram Singh. One of the big worries right now is that the Indian economy might get stuck in a situation of higher than wanted inflation and lower than wanted growth for a few quarters. With the lending environment being what it is, prospects of a tangible consumption improvement in urban and metro India are getting pushed further into the future. The final action to ponder over is that the Govt chose not to extend the term of the incumbent Governor who was still prioritizing inflation control over growth. Macroeconomic aggregate trends like inflation & growth take a few quarters to turn at the very least. In our assessment, it is time to be choosy and measured in portfolio actions.

This also ties into our decade old view that India is a start-stop market which warrants caution every now and then. While we will have some sectors showing secular growth for 3-5 years, at an aggregate market level it is quite difficult for things to move in a secular manner. The baton often passes from one sector to the other, one segment to another, one theme to another in a 2-3 year cycle. Even the most vocal advocates of passive investing would admit that the composition of the indices reflect this cyclicality in the Indian market (and many other markets too).

For this reason we continue to believe that active investing will have a play in India for many more years. It is just that investors need to have the guts to take the unpopular call of either avoiding a few sectors altogether or being early in a few. If one wants a market beating return, one has to keep maneuvering to where the puck is likely to be. If one makes the mistake of chasing the puck rather than being ahead of the curve, one will end up giving gyan that looks smart for some time but the medium term performance will look unimpressive. Every mini cycle of the Indian market sees some casualties – in 2018 it was one style, in 2024 it was another. Often these will be the poster boys of the previous run who are slow to recognize that the market texture is shifting and even slower to calibrate. The bigger the fund, harder the fall and the longer it takes to turn things around.

A normal market should have a healthy mix of diverse opinions with no obvious winning approach. So whenever we hear narratives like “quality will always outperform” or “small caps are the only pocket where alpha generation is possible”, we start to get uncomfortable. Once something succeeds to an extent that it becomes common knowledge, the seeds of the upcoming disaster are already being sown.

Our focus continues to remain on avoiding costly mistakes in the current market and keeping an open mind. Staying open to all possibilities and themes is easier said than done, our minds are always living in the recent past and are prone to silly extrapolation. What we mean is that we should avoid narratives like “capital goods & power sector good, consumption bad”. The only way we can reinforce this is by remembering the history of the previous decade where the narrative was “consumption good, power sector & capital goods bad”. The believers of the India capex story kept getting disappointed for years together while chaddi baniyan and footwear stocks were bid up to 60 PE in the search for earnings growth and alpha. This situation has already reversed with many core economy stocks going at 50 PE while a secular derating is underway in consumer stocks.

High entry valuation is very sneaky beast, once one goes down the slippery slope it is very difficult to turn back since the approach usually works well over the short term. Unless one can quickly and decisively cut positions, demanding a reasonable entry valuation is a more durable medium term strategy.

We begin this year on a somber note while hoping that the markets will take a more sanguine turn.

Among other updates, we recently got SEBI’s approval for a corporate RA license. This pretty much clears the path for us to launch new offerings and run differentiated smallcase portfolios for those who would prefer to also have an execution pathway in place. We will be announcing this once we get the initial compliance setup and a few other operational aspects in place, this should happen sooner than later. Hopefully by February, we will be able to bring more offerings and website features to the table. Do stay subscribed for more microcap business research notes in the meanwhile.