In a global environment dominated by a handful of mega-cap tech heavyweights and the expanding artificial intelligence (AI) trade, such concentration in market gains has historically not persisted. Over time, the markets will broad-base, and India is poised to emerge as a structural beneficiary, according to Harish Krishnan, Co-Chief Investment Officer (CIO) of Equity at Aditya Birla Sun Life AMC.
Speaking in an exclusive interview with NDTV Profit, Krishnan outlined a distinct playbook for navigating the current market cycle. He revealed that his fund remains positively biased towards Indian equities and has notably increased exposure to mid- and small-cap (SMID) spaces to capture structural growth. Drawing parallels to past market anomalies, Krishnan pointed out that only about 15% of constituents in the MSCI Emerging Markets Index are outperforming the broader benchmark.
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"The closest parallel that we have had in India was in 2018," Krishnan observed, referencing the "Ritik" episode where a tiny group of heavyweights, including HDFC Bank, Kotak Mahindra Bank, and Reliance Industries, did all the heavy lifting. "The primary hypothesis is that these narrow markets don't last for very long. They do tend to broaden over time."
While global capital remains temporarily locked into mega-cap artificial intelligence stocks, Krishnan believes that "as the dust settles, people will come back to the structural story that is India." He noted that Indian equities are backed by currency competitiveness and strong corporate health. While the upcoming "supply of paper" (new listings and public issues) might temporarily cap upside in the index, Krishnan is "positively biased towards equities," focusing on bottom-up stock picking.
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AI Growth: Shifting Focus From 'Picks and Shovels' to 'End Beneficiaries'
Addressing the global AI hype, Krishnan took a contrarian and grounded stance regarding Indian equities. While the market is excited about "picks and shovels" companies such as manufacturing small components for global giants or data centre utilities, Krishnan warned that Indian companies are largely at the fringes of the global hardware supply chain. Instead, the fund's strategy is to focus on companies where the domestic customer or enterprise benefits directly from AI implementation.
Krishnan emphasized that AI implementation can significantly reduce incremental costs required to onboard and service the next 10 crore users and that AI can optimize costs and customer journeys simultaneously, solving the core historical issue for new-age firms—the path to profitability. "What we really fancy in new-age businesses are those where customer habits have become entrenched, they are the number one player... and now you have AI which can optimize costs in ways we couldn't have thought of two years ago," Krishnan added. "We would rather be where there is greater control of destiny."
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Top Sector Bets
Rather than executing a blanket strategy across capitalisations, Krishnan emphasizes a sector-by-sector approach based on a company's distinct "right to win." "In 2024, when there was all-pervasive talk of multi-baggers... in our Flexi Cap fund, we used to have about 20% exposure to mid and small caps. As it stands today, we have got about 40% to 47% exposure to mid and small caps," Krishnan confirmed. According to the expert, here are the top sectoral picks by market value:
Banking & Financials (Large-cap Bias): In the financial sector, Krishnan notes that larger banks have a greater technological advantage, enabling far superior customer acquisition and lower operating structures than smaller peers. The fund also favors larger names in the consolidating insurance sector.
Chemicals & Consumer Discretionary (Mid-/Small-cap Bias): Conversely, the fund prefers mid-cap and small-cap stocks when looking at structural growth spaces. Mid-cap stocks in the chemicals space look highly favorable, alongside specialised auto ancillaries with strong global margins.
Value Retail & New-Age Tech: Consumer discretionary and value retail companies present a uniquely large scale of opportunity. Krishnan points to market-leading digital value retailers that have accumulated staggering user bases of up to 25 crore (250 million) users with practically no direct "number two or number three" competitors.
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