A Brief Update, And Then Some
When I sat down to write this I intended it to be three paragraphs. It became something longer.
I’ll be honest, the reason there hasn’t been a post in the past few months is simple. Nothing has changed in the portfolio. No new positions added, no existing positions removed. In investing, inactivity is often the most deliberate choice you can make, and that’s been the case here.
The last few months have been anything but quiet from a market perspective. Volatility has dominated headlines, along with the kind of breathless macro commentary that I’ve always tried to stay away from. Wars, tariffs, rate expectations, geopolitical realignments, all of it generating enormous amounts of noise and very little signal, and through all of it, the most considered response I could arrive at was to do nothing. That is not a lack of engagement. That is the job.
When prices started falling sharply in the early days of the conflict, I did look. Quite seriously. Several things got interesting enough to spend real time on. But interesting and cheap are two different things, and nothing I looked at crossed the threshold that would justify adding it to a portfolio I’m already happy with.
The portfolio has held up well, slightly positive year to date against a market that’s down close to 10%. I’m not saying that to congratulate myself. I’m saying it because it validates the original construction, not because of any clever trading.
What concerns me more is what has happened since the lows. The market has rebounded sharply, and the speed and completeness of that rebound implies a level of confidence that I find difficult to justify.
Markets appear to be pricing something close to a perfect resolution, as if the conflict ends cleanly, inflation fades quietly, and economic growth resumes without interruption. There is very little room in current prices for the possibility that things stay messy, that inflation proves stickier than expected, or that we are simply in for a long sideways grind rather than a clean recovery.
A stock falling 25% from a position of significant overvaluation is not the same as a stock becoming cheap. A company trading at 100x earnings that falls to 75x earnings has become less expensive, it has not become undervalued. The distance between “cheaper” and “cheap” is where a lot of investor optimism goes to die.
There is one specific thing I have been watching that I don’t think gets enough attention in the current market conversation. A large and growing portion of India’s monthly SIP inflows comes from salaried professionals, and a disproportionate share of that cohort works in the IT sector.
The assumption embedded in every SIP projection, that the inflows continue growing steadily, month after month, auto-debit after auto-debit, rests on the assumption that the income funding those SIPs remains intact.
That assumption deserves more scrutiny than it is currently receiving.
FY26 was the year Indian IT management began naming their own model’s mortality on their own earnings calls. For nearly three decades, the Indian IT pitch was straightforward, take work that costs $150 an hour in New York, route it to engineers in Bengaluru at a fraction of that cost, keep the spread, and scale by adding more engineers.
Headcount was a leading indicator for revenue. More bodies meant more billing. The entire industry was built on that equation.
In FY26, that equation broke. HCL’s CEO confirmed two years of 4-5% revenue growth with zero headcount growth, with at least a 1-1.5% difference between the two lines every single quarter. He gave it a name — “non-linearity” — which is a clean piece of jargon that translates to something far less comfortable: one more engineer no longer means one more set of billable hours.
Mphasis said the same thing in its own language, describing a “de-linkage between revenue growth and headcount growth” that has been building for several quarters now.
The most uncomfortable disclosure came when HCL’s CEO was asked directly what happens to the people whose work is being automated. His answer was precise, workers released due to productivity improvements are “not readily redeployable” because entry level and lower end skills are now being addressed through automation rather than reassignment.
The Indian IT majors employ a combined two million people. Even small percentage shifts in redeployability translate to large absolute numbers of careers that have to find a new direction.
The Coforge data point is perhaps the cleanest illustration of where this is heading. The company grew revenue roughly 30% in FY26 while its employee cost base grew only around 20%. That gap between the two lines, revenue compounding faster than the people generating it, is the entire thesis expressed in a single income statement. No commentary required.
HCL’s CEO went further, putting a structural framework on his own portfolio: roughly 40% of the industry, he said, runs the risk of being disrupted by AI and could shrink at 3-5% per year for several years. For HCL’s own book, he translated that to a 2-3% annual portfolio headwind. He is not being pessimistic about his company. He is being honest about the industry.
None of this means Indian IT collapses overnight. The companies are pivoting, toward platforms, toward IP, toward AI-native services. Some of them will navigate the transition successfully. But the transition itself is real, it is happening now, and it is being confirmed quarter by quarter by the people running the companies.
The question this raises for the broader market is one that almost nobody is asking. The cohort most responsible for driving systematic monthly equity inflows, salaried IT professionals with stable incomes and long investment horizons, is facing a level of income uncertainty it has not encountered in living memory.
Not in 2008, not in 2020. Those were cyclical disruptions. What is being described in these earnings calls is structural. The work is not coming back when the cycle turns. It is being absorbed by software that doesn’t need a salary, doesn’t take leave, and doesn’t open a Zerodha account.
I don’t know if this plays out over two years or ten. Neither does anyone else. But the directional signal is clear enough that it deserves to be part of any serious conversation about where Indian equity inflows go from here, and by extension, what sustains the premium valuations that those inflows have been funding.
When I started writing this I thought it would be a short update. It has become something else entirely.
Some readers will finish this and conclude that I am being overly pessimistic about India and its markets. I would push back on that characterisation. Pessimism is refusing to see opportunity.
What I am describing is something different — it is defence first. The job of a serious investor is not to identify how much they stand to gain. It is to understand, clearly and honestly, how much they stand to lose if things don’t go their way.
Most investors spend the majority of their time on the upside. The asymmetry that makes investing genuinely rewarding over the long run comes from the downside work, from knowing precisely what you are risking before you decide what you are reaching for.
Right now, at current prices, I don’t see a clear margin of safety in most of what the market is offering. And without that margin, I am content to wait. The portfolio stays as it is. When something genuinely cheap appears, not cheaper, cheap, you will hear about it here.