Subjectivity and Objectivity

While the ramble of subjectivity and objectivity may rumble on, value investing or investing as an action probably utilises disproportionate skills of relative analysis rather than discrete natural sciences. And that is probably the primary cause of difficulty on the path to achieving consistent results. How the human brain perceives data and information is likely a matter of interpretation, which might have its genesis on the subconscious (biases), conscious circumstances aka incentives (whether you are paid to perform or paid to manage as a money manager) and also the base case of reference.

A good investment decision mostly would essentially depend on two primary probabilities: the probability of the correctness, relevance, adjustment of reference points being satisfactory and the probability of the interpretation of information thus attained being satisfactory. Satisfying the two probabilistic conditions is made much more difficult as the training required to attain a state of mental condition to assess probabilities successfully and deliver successful results are not easily gained.

Evolving reference points

Cultures evolve over generations, as it passes through centuries of vicissitudes of human aggregation and disaggregation, as it constantly changes nature and form. Past residual memories of historic cultural traits linger on and is consummated with new ones forming a broth of old and new. Engaging commercially with the peoples of a culture necessitate the understanding of economic, moral, social, religious and political aspects and that is a particular challenge an investor has to face when forming reference points.

David Landes’s book, “The Wealth and Poverty of Nations”, is a well-regarded prose on explanations why developed nations developed in the first place, even though many subject the author to European regionalist allegations. Those allegations are highly tenuous, as it is hard to argue Presbyterian ways of living as not aiding to human upliftment. Primarily a life of hard work, honesty, optimism, self-development and quest for knowledge are probably ideal principles for a nation’s development. Understanding developing countries requires an understanding of the ideals that make a country developed as applying the law of inversion is found more useful, and that also instils certain overarching viewpoints of the basic genesis of how commerce operates in much of those countries.

1. While no country in the world can be called an absolute capitalist, developing countries have widely unorganised (without a long term plan), biased and inefficient government policies and a political framework. Pseudo socialistic methods such as adhoc taxations, disrespect for contractual obligations to promote hidden agendas, emphasis on display of intent without responsibility of execution, lack of transparent commercial terms (bribery, corruption) are widely seen.

2. High proportion of people inhibiting a developing country being poor, lowly educated effect increases in the cost of commerce when wide and varying cultural and religious details need to be considered.

3. Slow and ineffective justice systems inhibits movement of capital within the country as adherence to contracts and prevention of deceit, fraud, treachery, chicanery not common.

4. Adam Smith’s ‘invisible hand’ and ‘free trade’ ideologies are made mockery of as most politicians in those countries rarely understand, and if they do, lack the understanding that it is the movement of capital, goods and assets which create prosperity. Most developing countries in the world propagate export rather the movement component which can be a deadly misunderstanding.

5. Labour laws permitting adjustment of human capital to supply and demand conditions is met with furious dismissal while governments at the same time preach propagation of industry.

Brownie points and investment identification

In the midst of all what may seem to be gloomy, two facets of most developing economies shine through: financial inclusion and consumption. It may not be necessary to prove the point as large populations found in these countries are known and most of them enjoy a demographic dividend. Certainly most parts of Africa and Asia are in the midst of experiencing this phenomenon.

In an environment like such, and where financial inclusion or enhancement and consumption relate to each other in a loop. It is for an investor to identify those commercial setups which play into either consumption or financial inclusion and enhancement or both, and at the same time, lay at minimal risk of being hijacked by the inhibitive business environment characteristics of a developing economy aspects which has been noted above. Export oriented setups may enjoy the ride but the nature, quantum and the quality of the export largely determines a long term success story.

Where art my ‘value investing’?

Every investing should be value investing but resting that line of thought, typically, market standard value investment style in developed markets is defined as an acquisition of assets at lower than its immediate tangible price or business value. While this tactic may be a perfectly fine and many pursue it successfully, this method probably cannot be confidently applied to developing economies where contract laws and judicial systems are loose.

So what does value investing in a developing country mean? How does it differ from market standard growth investing?

Pondering over this question, the basis of differentiation comes from time frames. A growth investor would typically probably look for growth spurts in sectors, industries typically in conjunction with analysis of the business cycle.

On the other hand, value investing in a developing country (or a developed economy), according to me is identification of stories which are not transient, not typically excessively business cycle related, have strong and improving moats or brands, and usually trading at a price to present a satisfactory return annually when held for 10 years or more. Usually these are boring companies which does not have fancy wild adjectives attached to them. Their value comes from conducting their business in a prudent, rational manner which in time leads to sustainability, brand stickiness and recollection and ultimately pricing power. Most market participants do not discount or fail to discount appropriately that possible pricing power which is what, according to me, creates my investment future value.

How hard can that be?

Well, given the number of successful investors engaging in developing countries, assessment points to difficulty level: hard. The number of businesses operating with very strong franchises and operating models are few and far between and therefore only a concentrated portfolio may be capable of executing such a strategy, and many do not have the just conviction to be concentrated. Even if conviction is not the limiting factor, incentive structures for investors or investment managers might produce detrimental behavioural ramifications.

Saptarshi

The GreatBear Global Brands Strategy is built upon the second of these. Everything that follows from it- the names we choose to hold, the years we are willing to hold them for, the regard we have for brands and networks, our avoidance of certain industries, our willingness to let cash sit idle when nothing meets the bar- proceeds from that one disposition. It answers, in its own way, a single question: what does it take to own great businesses long enough for them to make one serious money?

Invisible

The best assets a company owns are very often the ones you cannot see.

Most of what makes a fine business valuable does not appear on its balance sheet. Brands. Networks. Patents. Customer habits. The trust people place, subconciously, in a name. These are the intangibles, and they matter for the simple reason that they are very hard to copy. A factory can be reproduced. A brand that a customer reaches for without thought cannot. A network that grows denser with every new participant cannot. A patent stack assembled over twenty years cannot.

This is why the strategy is built around global brands. It is not a stylistic preference. It is a considered bet upon the kind of asset that, over the long arc, tends to win.

Companies such as Nvidia, Alphabet, Microsoft, Apple, Meta, Visa, L’Oréal and Hermès all share one quiet characteristic. Their physical assets are modest, and their intangible assets are vast. The engine that drives each of them is invisible. This alters, fundamentally, the way we ought to value such businesses. The question is not whether the price-to-earnings ratio is low.

The question is how long the moat will endure.

A business at 5x times earnings with a 30 year runway is, in any honest valuation process, far cheaper than one at 12x with only arguably 5 years left to it.

The table below sets out the point with some clarity. For each of the companies, it compares what the market is paying for the business against what the business actually owns in physical, countable assets. The gap between the two is the intangible engine.

Two things deserve attention. First, the intangible share is very large across almost every holding. Almost all have more than 80% of their market value sitting outside any physical asset, and for some, such as Apple, the figure is close to the whole. The market is paying almost nothing for buildings and machinery. It is paying for the mindshare these companies have built in customers psyche.

Second, brand value alone does not capture the full picture. Brand Finance measures one part of the moat (the name itself). The wider gap between brand value and total intangible value is everything else. Ecosystem of Apple, or the network density of Meta, or the technological lead and switching costs at Nvidia and Microsoft, or the trust of JPMorgan, or the craft and scarcity of Hermès are things of envy. Therefore, a strategy that buys “brands” in the casual sense catches only a part of the moat. A strategy that buys intangible heavy compounders catches the whole of it.

JPMorgan, at 60%+, stands as the lone outlier and is interesting. Even when banks are tangible heavy by their nature, and their loans and reserves are real assets, what stands out is that nearly two-thirds of JPMorgan’s value still reside in intangibles. The franchise and the deposit base, and a 200 old name are worth hundreds of billions. Mr. Morgan was right in saying- "The first thing is character. Before money or anything else... Money cannot buy it."

Far off

If returns are to come from slow compounding, one must hold for a long time.

5-7 years is the minimum. Many positions should be held considerably longer, even forever. This is closer in spirit to private equity than to the trading of stocks. The question is never whether a share will move in the next quarter. It is whether the business will be stronger in 5 to 10 years than it is today.

That changes what one chooses to attend to, and what one chooses to ignore. Unit economics matter, and so does the manner in which managers allocate capital. Leadership quality is underrated too.

A strategy of 200 stocks is, in its own way, making a quiet confession, that it does not really know which of them are great, and so spreads its risk thin against that uncertainty. The true indentification of a know nothing investor.

Concentration is the opposite confession. If one has done the work and found great businesses, one should own enough of them for the ownership to count. Concentration also imposes discipline. When a single allocation is significant of the whole, the bar for switching is high. Every candidate must beat the names already held. Not merely good, better than what is already owned.

Conversely, a moat which does not change will, in the end, fail. This is the part many devoted to brands miss. They grow comfortable and forget that even the strongest names lose ground when innovation slows. The compounders of the next twenty years will be the ones that keep rebuilding their moats through new products that strengthen the brand, new platforms that thicken the network, or new technologies that widen the moat.

Put together, The GreatBear Global Brands Strategy resolves into a single sentence.

Own a small number of dominant global businesses. Choose those whose moats are built upon intangibles. Take care that those moats are continually being rebuilt through innovation. Hold for years rather than quarters. Or allow cash to accumulate when nothing meets the bar.

This article ideates a strategy from the publicly stated philosophy of GreatBear Global Brands. It is not investment advice. Investments can lose value.

When the price of gasoline is the first thing a president reaches for, you are not watching a country that is winning. You are watching one managing damage. Donald Trump has floated suspending the federal gas tax. He has promised, almost plaintively, that prices will drop “like a rock” once the war ends. He has called the ceasefire with Iran “on massive life support.” None of that is the language of a strategist collecting his winnings. It is the language of a man trying to fold.

That should be enough to retire a theory currently making the rounds, the one that says the war America and Israel launched on Iran in February is a rigged coin. Heads, oil stays expensive and the world’s biggest energy producer cashes in. Tails, the war ends and American drivers cheer. The house always wins. NOT!

It is a clever story. It is also wrong, and the administration’s own conduct is the proof. If a long war were a windfall, Washington would let it breathe. Instead it is sprinting for the exit. Consequently, we see peace plans, ceasefire extensions, envoys in Pakistan, phone calls to Beijing. Nobody scrambles this hard to end a war they are profiting from.

The deeper error isn’t economic, though. It’s strategic, and it was baked in from the first night.

America went to war with a headline goal: End Iran’s nuclear program. But bombing is the wrong tool for that job. Iran is no Afghanistan. Airstrikes can flatten a facility and buy months, even years. They cannot reach into a regime’s intentions, but they may definitively harden them, and probably will. Iran’s enriched uranium has not vanished. It has become a poker chip Tehran offers and withdraws at will. Nuclear arsenal may not have been used yet, but it surely does play its part in geopolitics- think Pakistan. The thing the war was for may simply not be deliverable by the means chosen. That is not bad luck. That is a goal-method mismatch, simply put.

Then there is the exit America never designed. Iran closed the Strait of Hormuz. Washington answered with a blockade of Iranian ports. Now each side insists the other’s stranglehold must lift first- a perfect deadlock, and an entirely foreseeable one. Former defense officials concede the administration carried “unrealistic expectations” about how quickly the fighting would end. Of course it did. It picked a fight without scripting the last act, like the US always does. Confidence is a funny thing.

Now count the costs. The Pentagon’s bill for the war already runs near $29 billion. The disruption to Hormuz is, in the words of the International Energy Agency, the largest supply shock in the history of the oil market. Inflation is climbing. The Dallas Fed thinks the war could add close to 2% to it. And there is a midterm election in November. Sun Tzu must be crying.

Worst of all is the gift to Beijing. China is the largest buyer of Iran’s sanctioned crude, which is why Trump now finds himself leaning on Xi Jinping to pressure Tehran toward a deal. A war meant to advertise American dominance has turned Washington, in the one negotiation that matters most right now, into a supplicant to its chief rival. Strategists are supposed to deny adversaries leverage. This one handed it over. Doesn’t look like the rendezvous went as planned. Russia too is smiling.

In balance, however, the war has worked a tad. Tehran’s military is degraded, its proxies battered, its supreme leader dead. If success means “hurt Iran,” America succeeded.

But that was always the easy war, the one a vastly superior military was guaranteed to win. The hard war is the one over outcomes. A verifiable end to the nuclear program, a stable region, an off-ramp that doesn’t reward Tehran for closing a global waterway. On that war, America is not winning. It is stuck.

This is what misplaying a hand actually looks like. Winning the cheap ones while bleeding on the expensive ones. America chose an objective which force can’t secure, neglected to plan its own way out, absorbed an oil shock at home, and strengthened China abroad. The strikes in February were precise. The strategy around them was not. Amazingly, the defence industrial complex of the US wins.

The coin was never rigged in America’s favor. It was simply spinning in the air. And Washington called it before it landed.

Twenty-five centuries ago, Sun Tzu set down the rule Washington forgot. The victorious general, he wrote, wins first and then goes to war. The losing one goes to war first and then hunts for a victory. No state, he warned, ever profited from a prolonged campaign. A drawn-out war drains the treasury, blunts the army, and tempts rival powers to feast on the exhaustion. The height of skill was never the battle won. It was the battle made unnecessary.

America mastered the opening move and skipped the rest of the book. The cost counted before the first shot, the exit drawn before the entrance, the patience to win a war before fighting it. The Art of War, in the end, is about not having to fight one. That is the page Washington tore out.

Saptarshi

Most investment commentary is written in the language of forecasts. What the S&P will do this year, where the ten-year will close, or whether the dollar will fall. Forecasts are easy to write, satisfying to read, and absolutley useless to allocate against. A global multi-asset portfolio is not built on point predictions. It is built on ideas. They are slow-moving structural forces that, taken together, justify departing from a passive benchmark in deliberate, sized, and defensible ways.

The below is a walk-through of the six tactical ideas that are informing our global capital allocation bets in 2026. Some are structural and might outlast the year. Some are cyclical and probably resolve sooner. Fortunately, none requires us to know what happens next month, but how the world is becoming. That is the whole point.

As “If—” by Rudyard Kipling (1910) aptly describes-

If you can keep your head when all about you
Are losing theirs …

(full poem at the end)

Tactical Idea 1

Valuation Dispersion Has Quietly Become Extreme

The most under-discussed feature of global markets today is the sheer width of the valuation gap between the world’s expensive equity markets and the cheap ones. The United States trades on a CAPE near 40, well above its 10 year average. Japan, the United Kingdom, and Australia all trade at meaningful premiums to their long-run earnings multiples. At the other end of the same world, India trades modestly below its ten-year average earnings multiple, and China sits as the cheapest large equity market on earth.

This is not a small dispersion. It is a massive one perhaps. Two economies growing at broadly similar nominal rates, priced as if they belong to different planets.

Multi- asset allocation is not an attempt to time when these gaps shut. Absolutely not. Probability of success of calling valuation reversion is poor over any horizon shorter than five years, if at all. However, what may be prudent is to push the portfolio away from markets priced for perfection and toward markets priced for revaluation, within bands that preclude catastrophic style drift. Cheap markets can stay cheap for years. Expensive markets can stay expensive for years too, but the long-run arithmetic of compounding is unforgiving: the price you pay for an earnings stream is confidently the single most important determinant of the return one eventually receives.

The valuation theme alone is not a portfolio. But it is the gravitational field within which our every other idea operates.

Tactical Idea 2

The Dollar’s Long Descent

The slow erosion of the US dollar’s premium cannot be taken lightly. Twin deficits in the US remain wide. The Federal Reserve sits in the mid 3s, having paused after its 2025 cuts as the Iran-driven energy shock complicates the path lower. On a real-effective-exchange-rate (REER) basis the dollar still looks overvalued. None of these are dramatic catalysts; together they are a steady, structural headwind.

A weakening dollar directly impacts local-currency emerging-market debt, emerging-market equities, gold, and broad commodities. None of these requires the dollar to crash. But each benefits from a marginally softer greenback compounding over time. The dollar idea also reinforces the valuation idea. Many of the cheapest equity markets in the world are emerging-market economies whose returns to a dollar-based investor are amplified by currency tailwinds.

The dollar will probably not fall in a straight line, and any single quarter may see it spike on safe-haven flows too. This cannot be an all-in trade but simply a recognition that the structural odds have shifted.

Tactical Idea 3

Gold’s Structural Bull Market

Gold has quietly been one of the dominant asset stories of the decade. Price targets continue to point higher, but the more important point is the structural backdrop, which has three legs.

Central-bank buying has shifted from episodic to structural.

Reserve managers across emerging markets are steadily diversifying away from dollar-denominated assets, and the marginal buyer of gold is increasingly an institution that does not care about the opportunity cost relative to Treasury yields.

De-dollarisation is overstated as an immediate threat to dollar hegemony, but it is real at the margin in trade settlement and in reserve composition. Marginal flows, sustained over years, are how regimes sometimes change in financial markets.

Geopolitical risk is no longer episodic but a permanent feature. Multiple simultaneous regional conflicts, a fractured global order, and the steady weaponisation of financial infrastructure all keep a strong bid on gold under safe-haven assets that no fiat currency can fully provide.

Interstingly, It is the single most uncorrelated asset to the equity and bond core, and it is the only asset that hedges simultaneously against inflation, currency debasement, and geopolitical disorder.

In an environment where all three are in motion, the case for a meaningful, durable gold position is stronger than it has been in a generation.

Tactical Idea 4

Compressed Credit, Hidden Carry

The credit market in 2026 is a study in mispricing. Investment grade and high yield spreads sit at or near all-time lows. The compensation for taking corporate credit risk has rarely been thinner, and the convexity is poor. The upside if spreads tighten further is small, the downside if they widen is meaningful. This is exactly the configuration in which credit risk is best taken off the table, not loaded up on. Optionality is too huge right now.

Subsequently, carry (or interest) has migrated elsewhere. Emerging market debt, both hard currency and local, offers yields well above developed market alternatives, with sovereign fiscal positions in many cases healthier than their developed market peers. Other non-US developed market bonds offer a different kind of value as the European Central Bank stays dovish and European duration becomes attractive against a backdrop of stickier US inflation. Inflation linked bonds offer a direct hedge against the very persistence that argues against overweighting nominal duration.

The point is not that bonds are uniformly attractive. It is that within fixed income, the locations of value have shifted.

Tactical Idea 5

Central-Bank Divergence Is the Trade

For the first time in years, the major central banks are visibly out of phase. The Federal Reserve has paused in the mid 3s after its 2025 cuts, navigating an inflation re-acceleration driven by the Iran energy shock. The European Central Bank is on hold, with markets now actively debating whether the next move is up rather than down. The Bank of England has cut into a tightening fiscal stance but is similarly being repriced for possible hikes. The Bank of Japan is the most hawkish outlier, normalising policy from its post-zero base while the rest of the world wrestles with whether the easing cycle is over.

Divergence drives currencies, which drives returns to global equity and bond positions. It also drives relative bond performance as duration in a cutting cycle is a different from duration in a hiking cycle. It also drives equity sector leadership, with rate-sensitive sectors performing differently across jurisdictions. Lastly, it drives carry, the gap between yields in cutting and hiking economies opens up trades that simply did not exist when every central bank moved in lockstep.

These ideas do not stand independent of one another. The dollar’s descent is partly the mechanical consequence of central-bank divergence. The relative attractiveness of European duration is partly the consequence of ECB dovishness. These ideas overlap and reinforce because they are different angles on the same underlying dynamic.

Tactical Idea 6

AI Concentration Is a Risk, Not Just a Story

There is an old West Ham football club song that fits the moment in markets:

I’m forever blowing bubbles, Pretty bubbles in the air. They fly so high, nearly reach the sky, Then like my dreams, they fade and die. Fortune’s always hiding, I’ve looked everywhere. I’m forever blowing bubbles, Pretty bubbles in the air.

It is a song about hope and disappointment, and it is a fair description of the AI complex at the centre of global equity benchmarks today.

The United States is now about 63% of the global equity index. A small group of mega-cap technology names drive most of that index’s earnings, multiples and recent returns. Anyone who tracks the benchmark is, whether they know it or not, running a concentrated bet on a handful of US AI-linked companies.

This is not a call to short AI. Some of these businesses are genuinely exceptional, and the capex cycle may yet earn its keep. The point is narrower: a benchmark weight is itself a bet. There is no neutral position. Holding the index is the AI concentration trade. Underweighting it is the diversification trade. Pretending otherwise is the most common mistake in portfolio construction.

The parallel with the dot-com era is hard to ignore. Then, as now, vast capex was being committed on the assumption that future returns would justify the spend. Then, as now, that assumption was already in the price. And then, as now, reflexivity is doing its work- rising prices justify the spending, the spending justifies the prices, and each feeds the other.

At some point the realisation will dawn, as it always does, that for many companies riding this wave, the capex will never earn a return. When that happens, a lot of market value will likely be destroyed. When it happens, nobody knows. That it will happen is about as close to a certainty as markets ever offer.

Pretty bubbles in the air. They fly so high. And then they do what bubbles do.

How Ideas Become a Portfolio

Six ideas do not produce six independent positions. They overlap, reinforce, and occasionally cancel, and the portfolio is the resolution of that interference pattern within hard guardrails.

A global multi-asset strategy is, in the end, an act of intellectual humility dressed up in spreadsheet discipline. These ideas will not all be right. Some will reverse. Some will be slower than expected. The portfolio survives that, because no single idea is sized large enough to break it, and because the discipline ensures that conviction never silently becomes concentration.

A global multi-asset strategy is not about being right about any one year, but to be approximately right about many of them, and to compound through the years when nobody is sure of anything at all.

Saptarshi

GreatBear All Seasons Strategy

“If—” by Rudyard Kipling (1910)

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too; …
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream-and not make dreams your master;
If you can think-and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ‘em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the will which says to them: “Hold on!”
If you can talk with crowds and keep your virtue,
Or walk with Kings-nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the earth and everything that’s in it,
And-which is more-you’ll be a Man, my son!

I keep wondering what is the difference between ‘investing and trading’ and ‘discretionary and systematic’ investing styles in terms of probability theory, and I come to the same conclusion all the time: that they all are the same — i.e., each of them tries to take a decision which clears a minimum threshold probability of being correct.

The minimum threshold probability is determined by the investor. The more speculative or risk-tolerant the investor, the lower the threshold probability is. In mathematical terms, the test is whether the product of two probabilities — the probability of the sufficiency of the information based on bounded rationality, and the probability of the decision on that information being correct — exceeds this threshold.

Bounded rationality is the behavioural characteristic of an investor or trader who is bounded by his capacity to accumulate information and process it. A decision is taken based on the rationality of bounded information which is satisfactory to the decision maker.

The Decision Rule

Let:

• Pₛ = probability of sufficient information, given a boundedly rational decision-maker

• P꜀ = probability of a correct decision, given the information

• Pₜ = minimum threshold for a positive decision (set by the investor)

Then the decision rule is simply:

D = 0 if Pₛ × P꜀ < Pₜ
D = 1 if Pₛ × P꜀ ≥ Pₜ

The above methodology works equally appropriately for a discretionary or a systematic investment style. In discretionary investing, the investor or trader is calculating the overall probability of success intuitively, which forms the basis of his confidence in the trade. In systematic investing, things are more explicit — the probability is calculated by various indicators like moving averages and Bollinger bands.

In both forms of investment styles, the investor or trader’s success is dependent on either having the skill to calculate probabilities correctly, or developing models that predict probabilities correctly.

Many a time, a successful investment process is considered an art rather than a science. I think a successful investment process is the art of calculating scientific concepts successfully.

If a trade is for a long time horizon, the accuracy of probabilities for both sufficiency and decision correctness needs to be more — because the longer the time horizon, the lower the probabilities of both, and hence the trade needs to be of higher potential returns for a positive decision. The exact opposite is true for a trader whose time frame is shorter.

The Option Analogy

Although written down in numbers, it is seen that most investors or traders make inappropriate judgements of their probabilities. When I come to think about it, I come to believe that the relation between Pₛ and P꜀ is like an option and its underlying.

The more the Pₛ, the more the P꜀. P꜀ behaves like the option, and Pₛ behaves like the underlying. And hence the delta of correct decision is:

Δ = ΔP꜀ / ΔPₛ

This delta is small at low values of Pₛ — meaning a marginal improvement in information quality barely moves the needle — and grows as Pₛ rises. In option terms, the curve is convex: each additional unit of “underlying” buys a larger unit of “option value,” which is exactly the relationship shown below.

Figure: P꜀ (deep purple) plotted as the option-like response to Pₛ, and the overall probability Pₛ × P꜀ (lavender) plotted alongside. A decision becomes positive (D = 1) only where the lavender curve crosses the threshold Pₜ — set here at 0.5, but variable from investor to investor.

In the above figure, a decision is only positive if the overall probability Pₛ × P꜀ is more than 50%. This threshold can vary from investor to investor. The relationship between Pₛ and P꜀ shows that the more astute an investor or trader is in increasing his efficiency of data and information collection to take a decision under bounded rationality — that is, in pushing Pₛ to the right — the more the investor or trader is successful in taking an overall correct decision. The convexity of the option analogy means this improvement compounds: small gains in information discipline yield disproportionately large gains in decision correctness.

The Real Lesson

My point here is that it is very important to ascertain the factor exposures of a security which affect it the most, and have the appropriate skill to make judgements on that information. Hence, as it is always said: if discretionary, invest in what you know; and if systematic, know your systems and their deficiencies — because information has to be correctly processed first, and not the decision on the information.

Saptarshi

Months passed and by which time I had earnestly begun my journey of self-educating myself and unlearning whatever formal education had drummed upon me. It did not take long to realise that my path to someday overseeing money the ‘Buffett or Schloss or Munger or Tulloch’ way was to go through self-actualisation, self-discovery, learning by looking, reading, and observing rather than the standard CFA textbooks which later I realised was an utter waste of time. My business school education wasn’t different either. They don’t teach promoter behaviour of a company in textbooks, but it is one the most important factors on how a company performs through time. How about psychology? or incentives?

Most of my journeys to and from work, and evenings were spent on reading about history (which I would thoroughly recommend to anyone who wanted to understand humans, capitalism, or economics). Climbed the steep hill of learning from The Wealth of Nations- Adam Smith with an intent to consume economics but promptly figured out it was rather a history book. It did not fail to teach me fortunately, most importantly, the power of incentives, or twisted economics, or illogical policy making. Financial statements for hours each day burning the midnight oil formed my late-night activity for many years.

Over the course of time, I was heavily influenced, and still am influenced to this day, by Presbyterian, or the Protestant work ethic also known as the Calvinist work ethic which emphasized diligence, discipline, and frugality in a person’s life. Historians like David Landes (Harvard) widely researched influence of Calvinist doctrines of asceticism and predestination on rise and spread of capitalism. Its effects would result eventually to the rise of the mighty USA.

Investment must be handled with Stewardship and should be allocated to those companies where shareholder investments are also treated with Stewardship.

The success of companies like Jardine Fleming (Jardine Matheson), which has Scottish ancestry and roots in the Keswick family, or giant investing groups like Aberdeen, Standard Life, Baillie Gifford, or Scottish Widows, all of which have stood at the forefront of international investing for generations, is no accident. These enormous houses were able to endure challenging times like the Great Depression when others failed thanks to their prudent long-term attitude to investing. If we looked more closely at their approach, we would find influences where the Presbyterian values of diligence and discipline were strong. It primarily gave rise to the concept of Stewardship, which is the act of managing others’ investments with the same diligence, care, and deliberation with which we manage our own. The rights and obligations of the businesses invested in were also covered by this notion.

In short, investment must be handled with Stewardship and should be allocated to those companies where shareholder investments are also treated with Stewardship. Mr. Tulloch was explaining a deep cultural and historical idea which I could simply not comprehend during the meeting.

Why do I speak of Stewardship? The last couple of years for anyone dealing with markets have been tough. Wild gyrations, coupled with stagflation fears and high interest rates raised serious questions on long term prospects of companies. We are still not out of the woods with inflation being persistent.

This vicissitude combined with the fortunate situation to be in a position to have complete responsibility of life savings (some in hundreds of thousands, some in millions) of most of those who have entrusted their faith upon me drew home the cognisance that I am not in the business of money management but rather hold a Stewardship position in their lives.

I am not in the business of money management but rather hold a Stewardship position in their lives.

I have recognised that this position holds great responsibilities, first and foremost of that being truthful with brazen honesty about the mistakes that I have made, and what I could have done better. Even greater, the responsibility to perform at one’s full potential to reciprocate on the trust placed is also huge. This means taking risks where it’s due, and doing what is best at any given point in time, without hesitation. No window dressing, no ‘management’, something so prevalent in the rest of the industry.

Only some get this, many won’t their entire lives. Money for them will remain just a number to be managed to set benchmarks. To me, it represents something much deeper.

Saptarshi

I have been spending time with India’s books lately. The picture that emerges is not the one most headlines describe. India is not turning into a populist welfarist (or in more academic terms, clientelism) state, despite the noise around freebies. India is also not a clean, market led story, despite the privatisation rhetoric. It is something more nuanced, and more useful for an allocator of capital. It is two economies running side by side, with the stock market sitting at the intersection between them.

One India is being shaped by capital expenditure, privatisation, GST 2.0, lower taxes, cleaner banking, tighter labour codes. This is the supply side India.

The other India is being built from below, voter by voter. Cash transfers to women, free food grains for hundreds of millions, subsidised gas, housing, sanitation. This is the demand side India.

I would think a pragmatic allocation framework does not have to choose between them.

The market is already pricing both, unevenly, sometimes generously, sometimes ungenerously. The question is where the trust is misplaced and where it is justified.

What 2025 Actually Told Us

The Nifty 50 returned about 10.5% in 2025. That number flatters the experience of most investors. The Smallcap 250 fell over 7%.

The story was not “buy India”. The story was “buy the right India”.

Below the surface, the rotation was sharp.

Three patterns are worth pausing on.

The cyclicals tied to the supply side India did the heavy lifting. PSU Banks, Metals, Auto, Financials. These are the segments where government capex, credit cleanup, and tax cuts show up in earnings most directly.

The defensives that traditionally cushion drawdowns offered no shelter this year. FMCG, Pharma, even the smaller end of the market. Stretched starting valuations met a tariff overhang and slowing urban discretionary spend.

And the broader market underperformed the headline. Smallcaps fell, mid caps barely held positive, only large cap leadership kept the index up. Sectoral selection mattered more than market timing. It almost always does. The interesting work is figuring out why.

Where the Tide Is Rising?

Banks. This is the single cleanest expression of the supply side India. Gross NPAs at decadal lows of around ~2.1% as of September 2025, down from ~2.3% six months earlier and from a peak of over ~11% in 2018. Credit growth running in the low double digits. Corporate borrowing has finally returned, driven by steel, cement, and renewables. Private banks like HDFC, ICICI, Axis trade at price to book ratios that are not stretched. PSU banks are still rerating from a low base. The risk worth tracking is margin compression as the RBI repo rate sits at ~5.25% after 125 basis points of cuts in 2025, but the structural setup remains the strongest in two decades.

Defence and capital goods. Order books are extraordinary. HAL is sitting on roughly Rs. 2.54 lakh crore in backlog as of March 2026, up from Rs. 1.89 lakh crore a year earlier. BEL is on around Rs. 74,000 crore. The government’s stated goal is Rs. 50,000 crore in defence exports by 2029, with the latest year already at Rs. 38,000 crore. The earnings runway is real. The valuation, however, is not subtle, and valuation discipline will matter.

Autos and consumer discretionary. This is where the two Indias meet. Tax cuts and rate cuts feed urban demand. Cash transfers and good monsoons feed rural demand. Rural FMCG volumes grew 7.7% in Q2 FY26, against urban growth of 3.7%. Two wheelers and entry level cars sit directly under this tailwind. Hero MotoCorp, TVS, Maruti all reflect this story in different proportions.

Infrastructure and capital goods. Eleven lakh crore plus of central capex per year is a structural force. The FY26 budget pencilled in Rs. 11.21 lakh crore, with the FY27 number stepped up to Rs. 12.2 lakh crore. Roads, railways, ports, transmission, water. Larsen and Toubro remains the bellwether. Adani Ports, IRFC, GMR Airports each play a sub theme. These businesses now have the order visibility they lacked a decade ago.

Renewable energy and grid. India crossed 50% non fossil installed capacity by mid 2025, five years ahead of target, and reached 51.9% by December. Solar manufacturing margins are under Chinese pressure. The cleaner trade is in transmission and grid build out, where competition is regulated and earnings are more predictable.

Where the Tide Has Pulled Back?

IT services. The worst major sector of 2025. Tariff shock plus weak discretionary spend in the US and Europe plus AI margin anxiety. The sector now trades at multi year low relative valuations. Whether that is opportunity or trap depends on how quickly Indian firms reposition into AI led delivery. I am watching, not buying yet, but the asymmetry is starting to look interesting.

Pharma. Similar story, milder in scale. Export heavy, tariff exposed, but with a strong domestic counterweight in Ayushman Bharat expansion and rising private healthcare spend. The structural domestic story remains. The export overhang is the problem.

FMCG staples. Down on the year. The valuations had been stretched for too long. Real volume growth is finally visible in rural India. If margins follow, 2026 may be kinder. The names are familiar- ITC, HUL, Nestle, Dabur. The discipline is to wait for valuations to align with the new growth, not to overpay for the recovery before it arrives.

A Note on Valuation

The Nifty 50 currently trades at about ~21 times trailing earnings. The ten year average sits closer to ~23. So at the headline level, the index is neither cheap nor expensive. It is roughly fair, perhaps a touch below average. That is a useful starting point, but it is also a deeply misleading one.

Index level valuation hides what is actually happening underneath.

The pattern is hard to miss. Where the policy story is loudest, the valuation is highest. Where the policy story is quietest or negative, valuation is most reasonable. That is how markets usually work, and it is also where the opportunity tends to lie.

Buying PSU banks in 2022 was uncomfortable. Buying defence in 2022 was uncomfortable. One of them is now expensive, the other still has room. Buying IT today is uncomfortable. That is usually a signal worth paying attention to, not dismissing.

The job of a value seeker is to buy good businesses at fair prices, and to wait. Not to chase whatever rose the most last quarter. The Indian market in 2026 will reward patience and punish enthusiasm, as most markets do, in proportion to how loudly the enthusiasm is voiced.

Closing

Two Indias, one market. The supply side India creates the operating leverage. The demand side India creates the volume growth. Both layers are real. Both are being mispriced in places.

I do not believe in trying to time these rotations, no one can. I would think investing in businesses that benefit from both layers, bought at prices that leave a margin for error, is a good strategy. That is the whole game. The rest is noise.

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This note reflects a personal reading of public data and policy as of early May 2026. It is not investment advice. Each investor must do their own work, with their own time horizon, and their own tolerance for being wrong.

For investors thinking through where to position capital in 2026, the question is no longer what to buy.

It is how to build a portfolio that can survive being wrong about any single thing.

Theme One

The AI Capital Cycle Goes Global Macro

Capital expenditure by the six largest US cloud companies is projected to exceed $1.3 trillion across 2026 and 2027, with the 2026 figure alone running more than 40% above 2025 levels. That is no longer a sector story. It is reshaping electricity demand, real estate (powered land for data centres), credit markets (where hyperscalers and new entrants are tapping private credit at record pace), and the earnings composition of the major US indices.

The implication runs deeper than a tech overweight. AI capex is now a direct input into the inflation outlook, the trajectory of long-end yields, and the sector composition of every market-cap-weighted equity index. Investors who hold global passive exposure are effectively long this build-out, whether they intended to be or not. The risk is symmetric: if the AI return-on-investment thesis disappoints, the index correction will be broad and synchronised, because the index has quietly become the trade.

Theme Two

The Return of Tariffs as a Macro Variable

The US effective tariff rate climbed from 2.3% at the start of 2025 to 13.5% by year-end, a level not seen since the early twentieth century. This is not a noisy headline; it is a structural realignment of how global trade is priced.

Companies are redesigning supply chains. Inflation risk has been re-introduced to longer-dated bonds. And the case for regional and emerging-market equities, which has been long out of favour, has strengthened as investors look to hedge what Morgan Stanley calls the multipolar world theme. Notably, the three top-performing thematic equity categories of 2025 all sat within that bucket. India in particular saw foreign direct investment inflows jump 73% to roughly $47 billion, on the back of supply-chain integration policies that are now playing out in equity flows as well.

The investment implication is not that tariffs are good or bad for any single region; it is that the dispersion of outcomes across countries and sectors has widened materially. That favours active country selection over passive global exposure.

Theme Three

The Quiet Death of Free Diversification

The diversification benefit investors took for granted is genuinely impaired. Morningstar calculates that a portfolio that started 60/40 ten years ago would today carry more than 80% in equities if left unrebalanced, a striking illustration of how the equity tailwind has reshaped portfolio risk in plain sight.

More fundamentally, the stock-bond correlation that anchored decades of balanced-portfolio thinking turned positive in 2022 for the first time in two decades. It has only partially normalised since.

The deeper concern is index concentration. BlackRock's research finds that US equity returns are now driven to an unusual degree by a single common factor. Meaning passive investors hold less true diversification than they think. Combined with elevated valuations and a Federal Reserve that the market expects to cut rates fewer than twice this year, the case for a disciplined, rules-based, multi-asset approach is considerably stronger than the case for free-form conviction.

The reward for being lazy with allocation has shrunk. The reward for being undisciplined has grown.

What this Landscape Demands

Three practical conclusions follow from these forces, taken together.

Define the bands, then defend them. The portfolios that drift hardest in bull markets are the ones that did the right thing once and then stopped looking. Explicit minimum and maximum allocations for equities, fixed income, and alternatives are no longer a sophistication.

Filter for valuation, not narrative. Country and sector tilts driven by the strongest recent performance are precisely the ones most vulnerable to AI-cycle and tariff-driven rerating. A simple discipline, for instance, requiring P/E to sit within a defined band of long-term averages, is a meaningful brake on chasing crowded trades.

Pre-commit the rebalancing cadence. Quarterly review with a hard trigger on any major drawdown does more to control real-world risk than any single market call. The investors most likely to do well over the next several years will not be the ones with the boldest views. They will be the ones whose process holds up when the views turn out to be partially wrong.

In Practice

GreatBear Capital’s All Seasons Strategy (DAAS) is built around exactly these disciplines: defined asset-class bands, a valuation screen on country exposures, quarterly tactical rebalancing, and Agentic AI used to extend analytical reach across the same forces described above. Held in segregated accounts at Interactive Brokers; targets 10% annualised volatility against a 60/40 ACWI / Bloomberg Agg benchmark.

Details: All Seasons Strategy (DAAS)

You are receiving this article because I think you might like it, or you are someone I know. If you don’t want to receive any communication from me, please kindly unsubscribe, and sincere apologies for the inconvenience.

Note: Significant part of the research has been derived from Agentic AIs. Although, the synthesis of the themes are totally our own.

This article is for informational purposes only and does not constitute investment advice. Investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Chart values for the stock-bond correlation are illustrative; capex and tariff figures reflect cited published estimates as of early 2026 and are subject to revision.

India’s solar story has inverted within a decade. Ten years ago, the country operated barely 3 GW of solar capacity and imported almost every cell, module, wafer and gram of polysilicon it consumed. Today, installed solar capacity has crossed 150 GW, module manufacturing capacity sits near 210 GW, and cell capacity is around 27 GW as of end-2025. India is now positioned as the world’s second-largest solar manufacturing base after China and is projected to become the second-largest solar market by annual installations in 2026.

The scale of the 2025 build-out itself is worth dwelling on: roughly 119 GW of module capacity and over 9 GW of cell capacity were added in a single year. For investors, that pace matters for two reasons. It signals the strength of domestic and policy tailwinds, and it flags that the supply side is running ahead of the demand side, creating an overcapacity problem that will shape winners and losers over the next three to five years.

The Three Pillars of the Indian Thesis

1. The ALMM and DCR regime. The Approved List of Models and Manufacturers is the backbone of India’s industrial protection. ALMM List-I (modules) has been operational since 2021 and effectively excludes non-listed manufacturers from government-linked projects. ALMM List-II, which extends the same gate-keeping logic to solar cells, takes effect from June 2026, meaning most new projects will need to use modules built with domestically produced cells. Domestic Content Requirement norms under PM Surya Ghar and CPSU-II layer an additional demand floor on top.

2. The PLI Scheme. The Production Linked Incentive for high-efficiency modules has anchored roughly ₹94,000 crore (~$10.1 billion) of announced capacity, with a bias toward integrated polysilicon-to-module players and TOPCon/HJT technology.

3. The 500 GW target. India aims for 500 GW of non-fossil capacity by 2030, with solar expected to contribute 280-300 GW. This requires ~50 GW of annual additions versus ~35 GW delivered in 2025, the execution gap is itself an opportunity.

The Headwinds Investors Cannot Ignore

US tariffs have rewritten the export math. The US absorbed ~97% of Indian solar exports through most of 2025; that window has slammed shut. Exports to the US dropped roughly 35%, and module prices for US-bound shipments jumped from around ₹25,000/kWp (~$269) to nearly ₹49,500/kWp (~$532). Export margins typically run 40-60% higher than domestic sales, so this is not a rounding-error issue.

Overcapacity is becoming visible. Domestic demand is estimated at 45-50 GWdc annually against module output of 60-65 GW which might drive consolidation, hurting sub-scale, pure-play assemblers first while shifting share to larger integrated manufacturers.

Upstream dependence remains near-total. India still imports essentially all of its polysilicon, ingots and wafers, largely from China. A domestic ingot/wafer mandate has been proposed for June 2028, but until that ecosystem is built, “Indian” modules are only partially Indian in value terms.

Valuation stretch. After the post-IPO rush of 2024-25, trailing P/E multiples for the larger names have sat above 40x, a level that assumes smooth execution and continued policy protection.

The Tariff-Exposure Spectrum: Who Is Least and Most Impacted?

The February 2026 US tariff shock exposed a clear split that investors should internalize before sizing any position.

Highly exposed (US orders material): Waaree Energies (~65% US order book), Vikram Solar (~16%), Saatvik Green Energy, Emmvee Photovoltaic, and Websol Energy System.

Relatively insulated (domestic-first models): Premier Energies (almost entirely domestic order book), the EPC/IPP cohort (Bondada, Oriana, KPI Green, Waaree Renewable), and domestic-focused small manufacturers (Insolation, APS, Solex).

Indian manufacturers have collectively reduced US exposure meaningfully, with industry commentary suggesting US shipments now represent only 5-7% of total production. For investors worried about headline tariff risk, the EPC/IPP cohort and domestic-focused micro-caps are structurally better insulated than the pure-play export-oriented module manufacturers.

The Listed Universe at a Glance

Indian market conventions treat companies outside the top 250 by market cap as small-caps, with micro-caps typically indexed in the Nifty Microcap 250 (roughly ranks 501-750). The solar listed universe spans the full spectrum.

Source: Screener

Framing the Opportunity: Filters That Matter

The case for small and micro-cap Indian solar names is grounded in revenue growth that is often much higher than large caps (Solex >130% last quarter, Saatvik doubled in FY25, Bondada +96% in FY25, Oriana +165% over two years), lower absolute P/E multiples, and structural demand tailwinds from ALMM List-II. On the other side, the cohort carries the full spectrum of small-cap risks: thin balance sheets, weak bargaining power, limited diversification, and real consolidation risk for sub-scale players.

The Three-Phase Roadmap the Market is Pricing In

A useful mental model tracks India through three phases analogous to China’s a decade earlier:

• FY26 – Volume growth. Capacity races ahead of demand; top line grows fast but margins come under pressure.

• FY27-FY29 – Margin expansion via integration. Players that invested in cells, wafers and ingots enjoy a cost advantage; pure assemblers either integrate or get absorbed.

• FY30 and beyond – Platform play. The survivors expand into BESS, electrolysers, inverters, and EPC-plus-O&M bundles, where Chinese manufacturers found their durable profit pools.

If this framework is broadly correct, the small and micro-cap cohort is living through its most dangerous phase right now. The names that emerge intact from the FY26-27 consolidation window have the potential to re-rate meaningfully; the ones that don’t survive will be acquired at modest premiums or simply fade.

The tariff-resistant cohort (Premier Energies among manufacturers; Bondada, Oriana, KPI Green, Waaree Renewable on the EPC/IPP side; Insolation, Solex, APS among domestic-focused small manufacturers) can serve as a hedge within a broader solar basket against further trade-policy shocks.

Saptarshi
Important: We may have positions in some of the stocks mentioned.

All USD conversions in this article use an indicative rate of ₹93/USD, in line with spot USD/INR around April 2026. Exchange rates, market capitalizations and order-book figures are approximate and move daily.

This article is for informational and educational purposes only. It does not constitute investment advice, a recommendation to buy or sell any security, or a solicitation. The author is not a registered investment advisor. Market capitalizations, stock prices, exchange rates and order-book figures referenced are approximate (USD conversions use ~₹93/USD) and change daily, all figures should be verified against current data before any investment decision. Investments in equity markets, and particularly in small, micro-cap and SME-platform stocks, carry the risk of substantial loss. Readers should consult a registered investment advisor and conduct their own due diligence before making any investment decisions.

Eight years ago, India’s public sector banks were a genuine macroeconomic hazard. In FY18, the twelve PSBs (then 21) collectively booked a net loss of roughly ₹87,000 crore (~$9.4 billion). Gross NPAs had crossed ₹10 lakh crore (~$107 billion), with the GNPA ratio touching 14.6% of advances. Eleven banks were sitting under the RBI’s Prompt Corrective Action framework, unable to lend freely. The PNB (Nirav Modi) fraud had exposed governance rot. A dozen well-known corporate defaults - IL&FS, DHFL, various steel and power borrowers - made the word “NPA” a daily headline.

Contrast that with FY26. In the nine months to December 2025, PSBs had already booked a combined net profit of roughly ₹1.46 lakh crore (~$15.7 billion), up about 13% year-on-year. Q3 FY26 alone produced a record quarterly profit of ₹52,603 crore (~$5.7 billion), up 18% YoY, with every one of the twelve PSBs in the black. SBI put up ₹21,028 crore (~$2.3 billion) in standalone quarterly profit, a 24.5% jump. The aggregate system GNPA ratio dropped to 2.1% in Q3 FY26, a number that, a decade ago, would have been unthinkable. FY25 had closed at a record ₹1.78 lakh crore (~$19.1 billion) in combined profit, and FY26 is on track to cross ₹2 lakh crore (~$21.5 billion) for the first time.

This is not a cyclical bounce. It is a structural rebuild, and it deserves to be understood on its own terms, especially by equity investors who still price these institutions as if the ghosts of FY18 were sitting on the balance sheet.

The Reforms That Actually Worked

The turnaround rests on four moving parts, broadly grouped by the government as the “4R strategy”: Recognition, Resolution, Recapitalisation, Reform.

Recognition began with the RBI’s Asset Quality Review in 2015, which forced banks to classify stressed loans honestly instead of ever-greening them.

Resolution came through the Insolvency and Bankruptcy Code (2016), which for the first time gave Indian creditors a realistic legal path to either recover dues or hand over control of a defaulting company. The National Asset Reconstruction Company (NARCL), set up in 2021, took another layer of legacy bad assets off PSB balance sheets. Between FY21 and mid-FY26, PSBs wrote off roughly ₹5.8 lakh crore (~$62 billion) in bad loans, with recovery efforts through DRTs, SARFAESI, and IBC continuing in parallel on written-off accounts.

Recapitalisation was brute-force but necessary. The government infused approximately ₹3.1 lakh crore (~$33 billion) into PSBs between FY17 and FY21, and the banks themselves raised additional capital from the market.

Reform is the softest but arguably most durable layer: mergers, board-level governance changes, digitisation, and a shift away from lending decisions being directed through political channels. In 2019-2020, 10 PSBs were consolidated into four, taking the total from 27 to 12. A second round of consolidation, possibly reducing the count to around 8 by FY27, is reportedly under cabinet-level discussion.

The reason this matters for valuation is simple: each of these changes is structural, not cyclical. IBC did not go away when profits returned. AQR has not been rolled back. The merged banks are not going to un-merge. Whatever you think about PSBs today, they are not going back to being what they were in 2016.

Operational Convergence With Private Peers

The table below is where the thesis starts to get interesting. Before looking at the current quarter, it is worth seeing the arc, how far and how fast the gap has actually closed over the last five years.

Two things jump out. First, the absolute GNPA gap between PSU and private banks has collapsed from roughly 430 basis points in FY21 to just ~40 basis points by the end of FY26. Second, on net NPAs, the metric that actually matters for shareholder capital because it is what is left after provisions, PSU banks have effectively closed the gap: 0.55% vs. 0.4%. For context, in FY21 the NNPA gap was 180 basis points wide. Today it is 15 basis points.

SBI’s asset quality is now indistinguishable from ICICI’s or Axis’s, and actually better on net NPAs than any of the top four private banks. Indian Overseas Bank, written off for dead half a decade ago, is now reporting GNPAs below HDFC’s. Even the weaker PSBs (PNB, Union) have cut their GNPAs by roughly two-thirds from peak levels.

The growth side is even more striking. In Q3 FY26, PSBs reported loan growth above 14.5% YoY, while large private banks grew their books at under 12%. PSBs also reported net slippages of just 0.1%, turning mildly negative after recoveries. The narrative that PSBs grow slowly and lose money no longer matches the quarterly print.

There are genuine differences that remain: net interest margins at private banks are still structurally higher (private-bank NIMs typically run 100–150 bps above PSBs), cost-to-income ratios at PSBs are heavier, and ROE for the best private banks (HDFC, ICICI at roughly 16-17%) is still above the PSB average (roughly 14-15% for the stronger PSBs, lower for the weaker ones). This is not full convergence, but the gap is smaller than at any point in the last fifteen years.

The Valuation Gap

Now the core of the thesis. Here is what the market is paying for these two sets of banks as of mid-April 2026:

Bank of Baroda, the country’s second-largest PSB by assets, with a ₹1.44 lakh crore (~$15.5 billion) market cap, a 14% ROE, and a GNPA comparable to ICICI’s, trades at 0.88 times book value. HDFC Bank, whose GNPA is only modestly better, trades at over three times book. That is a roughly 3.5x valuation multiple gap between two lenders whose asset quality differs by less than 100 basis points.

As we speak, still the average PSB trades at a meaningful discount on every standard measure- P/B, P/E, and dividend yield- to its private counterpart.

The dividend-yield point is worth pausing on. Bank of Baroda paid a dividend of ₹8.35 (~$0.09) per share on FY25 results, translating to a yield of roughly 3-4% at current prices. SBI, PNB, and Canara all sit in similar territory. HDFC Bank’s dividend yield is roughly 1%. For investors who care about cash returns, the PSBs are offering something the private banks structurally cannot at their current multiples.

Bottom Line

The PSU bank story is not primarily a momentum trade, even though it has felt like one through a five-year index rally. Underneath the share prices, something harder and more durable has happened: a ₹87,000 crore (~$9.4 billion) loss-making sector has become a ₹2 lakh crore (~$21.5 billion) profit-making one, with asset quality metrics within touching distance of private peers and loan growth ahead of them.

The market has partially caught up, SBI is not trading at 0.6x book anymore, BoB is not at 0.4x. But the residual discount, still in the range of 40-70% on P/B versus private peers, continues to assume structural inferiority that the operational numbers no longer support. The easy outperformance is behind; the rational re-rating may not be. For investors who are disciplined about picking the stronger PSBs (SBI, BoB, Canara, Indian Bank) rather than the weaker tail, and who can hold through the noise of a likely second merger round, the risk-reward remains asymmetric in the PSBs’ favour, less spectacular than 2021-2025, but still meaningfully positive.

The private-bank bulls may well be right that HDFC, ICICI, and Kotak are now cheaper than they have been in years. That does not make the PSBs expensive. Both things can be true simultaneously. When the banking sector as a whole re-rates, the mathematical gap between 0.9x book and 2.8x book is still where most of the convergence has to happen.

Saptarshi

This article is intended for informational purposes only. It is not investment advice.

Note on currency: All INR-to-USD conversions in this article use a reference rate of ₹93 per USD (the approximate mid-April 2026 spot rate). 1 lakh crore = ₹1 trillion ≈ $10.75 billion.

This is not to romanticise the saving cultures of Asia as something innate. Looking across history, man has almost always tried to consume more than he needs and more than he deserves. Chinese dynasties fought for dominance over land they did not need. India’s wealthy kings did much the same before the Mughals absorbed that excess, only to be displaced in turn by the British.

What is different about the past century is the machinery: the West has outgrown its counterparts not through conquest or trade surpluses, but through credit. US household debt alone crossed $17 trillion by 2023, and the household savings rate, which sat comfortably above 10% through much of the postwar era, has spent most of the last two decades in the low single digits. The instrument is new; the impulse toward excess is not. And history suggests that mismanaged excess - whether deserved or not - tends to hasten the decline of the generation that holds it.

A second pattern runs alongside the first: wealth concentrates. Kings and lords occupied the top of the pyramid in earlier eras; today it is the capitalists. Marx saw this clearly - he diagnosed capitalism as a system whose internal logic pushes wealth upward until it destabilises itself, eventually giving way to something else. He was not advocating concentration; he was describing it. And whatever one makes of his prescriptions, the descriptive part has aged surprisingly well. In the United States, the top 1% now holds roughly 30% of household wealth, while the bottom half holds around 2.5%. The creeping expansion of regulation across Western economies - the quasi-governmental character Marx half-predicted - is arguably a symptom of a system trying to manage the instabilities he warned about.

Most of the world, outside the remaining communist states and the Gulf monarchies, runs on some version of Keynesian economics. When Keynes broke from the Classical tradition in 1936 with the General Theory, he gave governments the modern rationale for using spending and taxation to stabilise demand. But stabilising demand is not the same thing as redistributing wealth, and this is where I think the current settlement falls short. Fiscal policy, as actually practised, has not meaningfully narrowed the pyramid. Warren Buffett famously pointed out that his effective tax rate was lower than his secretary’s - an observation that should have been embarrassing enough to provoke reform, and mostly didn’t.

Quantitative easing, which is really more monetarist than Keynesian in lineage, made things worse on this front: by lifting asset prices, it delivered most of its gains to those who already owned assets, while the cheap capital it created flowed toward more competitive, higher-yielding emerging markets. The Fed’s balance sheet expanded from under $1 trillion in 2008 to nearly $9 trillion at its peak, and it is hard to argue the base of the pyramid saw a proportional share of the benefit.

Europe’s current predicament strikes me as a kind of philosophical inevitability. The continent holds wealth that its productive base no longer quite justifies, and the instinct - understandable, human - has been to cling to it rather than let it adjust. That is a rentier instinct, not a Marxist one, but the outcome Marx described still applies: wealth that cannot be defended by production tends, eventually, to be written down. It is a hard result for European politicians to accept, but it is not a new one.

History has run this script before.

Meanwhile, the emerging markets absorbing today’s prosperity are beginning to show the early signs of the same cycle. Dominance attracts imitation, imitation attracts competition, and the less affluent eventually pull wealth from the more affluent.

What comes around goes around - and in this age, the medium of that cycle is capital and credit rather than land or grain.

Saptarshi

I would think in both those cases, unhappiness is the most probable outcome. But love, according to me, is something which should nourish, and which, eyes closed, you are happy to be in, still, in say 10 or 20 years or till the last day you live.

Of course, love isn’t without its trials and tribulations, as the famous song Love Hurts (Nazareth) aptly describes. Yet I would think that, in spite of the hurt, the soul somehow inherently finds peace underneath, providing the strength to endure the hurt. If I look back at the two love affairs- one with my beautiful wife and the other with capital allocation- I know my love is deep and true because in spite of all the failures, some gut wrenching, some distressing, I still can imagine being in love with both till the end of my life.

Love I have also observed, is quite serendipitous and it ain’t a deliberate action. I still remember the exact place and the time I looked up to the sky and asked the universe to give me a companion for life. I got my answer the next day itself when I made my first contact with my much, much better half. I did not even take a week to know and tell her that I would love to be married to her. As I always thought and stated- I really punched above my weight. Our four beautiful children are a good indication of that.

Investing, or capital allocation, arrived in my life through a similar karmic accident. It came particularly at a time when I was disillusioned with my then career path- of being an automobile engineer. I won’t name the company I worked for back then, but when I saw first hand the copy-paste activity done in the design department, it really broke me inside. I saw no future in that field anymore somehow. After the two most pressing years of confusion- right out of university- I was back at it trying to figure out my whole life- again.

Where you are born, to which parents, can determine your life’s outlook and actions, or your vantage to a very large extent- something which is probably not well appreciated till one attains maturity or some age. I came from communist parents, and I grew up in a village devoid of any worldly information. The only non-local newspaper which covered any global news came in 3 days late. I had no access to good television or the computer till I was 18.

Consequently, it is obvious to see that investing/ capital allocation/ capitalism was and is still met with naive mistrust from the very two people - my parents- who influenced my life for my formative first 18 years. For them, if you were not a technology employee in one of the major IT firms in Bangalore, India, you were a failure.

I was a failure in their eyes out of university anyways- and my attraction to capital markets did nothing to improve their judgment of me. If it was not for the likes of Benjamin Graham, Walter Schloss, Warren Buffett, Charlie Munger, Stanley Druckenmiller et al., my confidence would have been shaken too. I knew that it was not a field of the deceitful, but a career of constant knowledge acquisition, the pursuit of rationality, test of temperament and probably also constant regret management. Sounded interesting then and still does.

If anything, finding meaning in gaining interdisciplinary knowledge is what has been the key highlight of now a 16+ year journey.

Along the way, in building a venture of capital allocation, it has had its share of ups and downs- from working on mathematically beautiful yet practically useless portfolio optimisation, to dealing with clients who couldn’t differentiate between a stock and a potato, sometimes, it has been frustrating, and to the usual tuition fees a capital allocator usually pays before one gains grey hairs, it has been colourful. Yet, I have been lucky to be in a position where trust and faith have been placed upon me equally.

But if I could describe my deep thoughts to both my wife and my journey as a capital allocator, I would think of Def Leppard’s song- I have a long, long way to go, before I could say goodbye, to you… is a perfect metaphor.

One is only as good as the opportunity one gets.

I hope I get lucky.

Saptarshi