ETMarkets PMS Talk: From PE to public markets — Sonal Minhas on finding the next big winners
public markets
.
Speaking on the sidelines of APMI conference, Minhas believes that while India remains one of the few global economies delivering 5–6% real growth, the days of expecting 15–16% nominal growth are over.
With larger companies facing growth challenges and disruption from technology, he sees the real alpha opportunities lying in small- and mid-cap stocks.
He highlights specialty chemicals, MSME-focused
banking
, and the auto ancillary sector as key growth pockets for the next five to six years.
Drawing from his
private equity
and venture capital experience, Minhas also points to a rising trend of
PE
funds entering public markets, applying private equity-style frameworks to identify high-quality, scalable businesses.
According to him, this shift offers better return on input and access to a larger pool of promising companies — a strategy Prescient Capital is pursuing exclusively. Edited Excerpts –
Kshitij Anand: Let us talk a little about the
markets
. With India being one of the largest democracies, growing at a faster pace than most developed economies in the world, and inflation at 2.1%, how are you looking at the markets? Do you think we will be able to mimic the returns we have seen, say, in the past four to five years? We have seen magnificent returns from a portfolio perspective, and investors have made money — one of the prime reasons why we are seeing around ₹27,000 crore of SIP money moving into mutual funds, along with exponential growth in other segments as well. What are your views on that?
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Sonal Minhas:
From a global perspective, India is the only beacon where you are seeing 5–6% real economic growth. Therefore, India is a natural magnet for international investors.
If you compare India today to India five or seven years ago, the real and nominal growth rates have both tapered down. The real growth rate has dropped by around 2%, and the nominal growth rate — because inflation has come down — has eased to 8–9%.
What was once assumed to be 15–16% growth in the economy, and hence the capital markets, is no longer the assumption for the future.
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Therefore, the only pockets of strong growth are companies which, because of their smaller size, are able to grow faster. Large companies will find it more difficult to grow and will also face heightened competition from technology players breaking traditional forms of distribution.
Investors will have to look for more alpha-generating products, where you are really chasing growth at fair valuations. This is only possible in small- and mid-caps.
So, my summary is: active investing in small- and mid-caps will be for alpha generation, while large-cap investing will be more passive — like ETFs.
Kshitij Anand: In terms of sectors, where do you think alpha will come from, or which sectors do you believe will be more prominent in the next few years? We saw a big spike in new-age tech or new-age businesses that captured investors' attention over the past two or three years. Are there any new trends you think are emerging?
Sonal Minhas:
I am a bit of a contrarian. I come from a PE/VC background and now run a public fund. I believe big alpha comes from taking a contrarian approach because popular sectors often have already overbought or oversold ideas.
Looking at sectors from a growth perspective: India is a story of glass half full and half empty — some sectors are struggling, but quite a few are doing well. For example, specialty chemicals is breaking out.
Over the last three years, Chinese dumping of products compared to Indian offerings has stopped, and their excess inventory has vanished. As a result, chemical companies are improving their gross margins — a good sign for better realisations and earnings growth.
Another example is the banking sector — with the exception of microfinance and credit cards — which is in the pink of health for corporate lending and MSMEs. MSME is emerging as a breakout sector.
Third, the auto ancillary industry stands out. With the free trade agreement with the UK and tariff advantages with the USA, our auto ancillary industry is probably the first or second most competitive in the world on both cost and innovation.
Many of these companies are EV- and hybrid-ready, and prepared to supply parts to the global EV supply chain. While our OEMs may not perform as well due to regulatory and policy factors, the auto ancillary sector looks ripe for strong growth over the next five to six years.
These are, broadly, a few sectors worth investing in.
Kshitij Anand: I have also seen a trend nowadays where a lot of PE funds are getting into investment space as well, and that is a trend which is now picking up faster, with a lot of new Shark Tank-style programmes coming up in that case.
Sonal Minhas:
I come from a PE background where we were investing in public markets…
Kshitij Anand: That is why I specifically wanted to ask you this question.
Sonal Minhas
: India is a small country from an opportunity perspective — we all forget that — and even private markets have their cycles. If you have 300 PE funds chasing 10–15 good deals in a year, and the same for VC, the chances are you will not make money. There is no rocket science to it. The same applies to public markets as well.
Therefore, people are forced to look at what is the best use of their time and frameworks. Similar to what we do — if you use the frameworks of private equity investing in public markets — if there were 10 companies on the private side, there are 100 good companies on the public side.
So, your ROI — return on input — is far better. Hence, you are seeing a lot of PE funds, like ChrysCapital, setting up their own public investing arms, and a couple of others as well. I think Nalanda has been doing it very well, as has WestBridge.
We started doing the same at Elevation/SAIF Partners, and now we have branched out to set up Prescient on our own, exclusively on this theme — that is, let us do private equity-style investing in public markets.
There are enough small, good growth companies with strong pedigree founders who have a 10–15-year runway ahead of them in terms of delivering growth in the markets.
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