India’s next wealth creators: Doshi flags sectors and risks

Manufacturing, healthcare, financial services and emerging technologies could produce India’s next generation of wealth-building businesses, according to Sanjay Doshi, Head of Investments & Research at Abakkus Mutual Fund. But investors must distinguish attractive industry prospects from companies capable of turning them into lasting earnings and cash flows.

In an interview with Kshitij Anand published by Economic Times Markets on October 17, Doshi argued for selective investing across large, mid-sized and small companies rather than a sweeping shift towards one market-cap segment. His central test: whether a business’s growth prospects and financial strength justify the price investors pay.

Domestic manufacturing and financialisation offer openings

Doshi linked manufacturing opportunities to India’s relatively early stage of industrial development, the government’s emphasis on indigenisation and policies aimed at strengthening the country’s position in global supply chains. He identified engineering, components, power equipment, renewables, electronics, defence and aerospace, and specialty chemicals as areas with potential.

The movement of household savings into investment products could support asset management, insurance and wealth management, he said. In healthcare, he pointed to pharmaceuticals, diagnostics, contract development and manufacturing organisations, and medical technology.

Technology businesses also merit attention where their products raise productivity or solve a clearly defined customer problem, in his assessment. Across these sectors, however, he placed execution and disciplined use of capital ahead of thematic appeal.

Cheaper largecaps do not settle the allocation debate

Doshi said largecap valuations had fallen below their long-term historical averages, offering greater valuation comfort. He put expected earnings growth for large companies at about 10–12%, against roughly 15–20% for midcaps and smallcaps. These were his expectations, not assured outcomes, and the interview did not specify a forecast period for those ranges.

He argued that a valuation comparison is incomplete without considering how quickly earnings can expand and how durable that expansion is. Some smaller businesses still have scope to gain market share, increase scale and lift profitability, although the price paid must leave an adequate margin of safety.

To illustrate differences even among larger companies, Doshi cited six-month total returns to September 30, 2026: 2.13% for the Nifty 50 TRI and 16.14% for the Nifty Next 50 TRI. The two indices together make up the Nifty 100. His point was that a broad market-cap label can conceal sharply different investment outcomes.

Established operations and diversified revenue can improve earnings visibility at large companies, he said, but that advantage still needs to be assessed business by business.

The financial warning signs behind a growth story

Parts of the midcap and smallcap market already price in substantial earnings expansion over the coming years, Doshi cautioned. To support those valuations, businesses must deliver consistent profits, sound cash generation and healthy returns on capital employed.

Describing Abakkus’s MEETS investment framework, he said the firm examines management’s capital-allocation decisions and earnings quality through the business cycle. It avoids businesses with damaged balance sheets or debt levels that cannot be sustained.

Warning signs include borrowing that keeps increasing without better returns, rising accounting profits accompanied by weak cash flows, and receivables or inventories repeatedly growing faster than sales. Poor governance and questionable deployment of capital can disqualify a company despite an appealing growth opportunity.

He also distinguished structural weakness from temporary cash-flow pressure caused by expansion. The reasons behind the numbers matter, rather than any single financial measure in isolation. Similarly, strong flows into mutual funds indicate investor interest but do not themselves establish that stock valuations are justified.

SIPs and rebalancing should follow goals, not recent winners

For investors beginning a systematic investment plan, Doshi rejected a universal allocation formula. Largecaps may serve as the portfolio core for some investors, while a flexi-cap fund gives its manager scope to invest across company sizes. The appropriate mix depends on investment goals, time horizon and tolerance for volatility.

He advised against changing SIP allocations simply because one segment has corrected. Rebalancing can make sense when outperformance has pushed midcaps or smallcaps above an investor’s intended portfolio share; that is different from abandoning a segment solely because it has enjoyed a strong run.

On a possible sustained move towards largecaps, Doshi said a combination of earnings disappointments, valuation pressure, foreign-investor flows and a broader slowdown could drive such a shift. He identified the monsoon as a domestic risk that could affect second-half growth, while describing most current challenges as external.

Even if conditions deteriorate, he believes a rotation could prove temporary because of the range of medium- and long-term opportunities among smaller companies. That remains an investment judgement, rather than a prediction investors can treat as certain.