Your Portfolio in India's Growth Momentum

Dear Investors,

India just posted 8.2% GDP growth while inflation dropped to 0.3%, the lowest on record. Markets are celebrating, touching fresh highs. Your portfolios have benefited from this rally.

But here's what we're thinking about: Can this last? Are we paying too much for growth? And most importantly—how should we position your wealth for what comes next?

This isn't about predicting the future. It's about preparing for multiple scenarios while staying invested in India's long-term story.

What Just Happened: The Big Picture

Let's start with the facts.

The Good News:

• GDP grew 8.2% in Q2—the fastest in six quarters

• Manufacturing up 9.1%, services up 9.2%

• Inflation at historic lows (0.3% in October)

• Corporate earnings beating expectations

• Credit flowing at healthy pace (11.3% growth)

The Reality Check:

• Some valuations are stretched, especially in tech

• Trade deficit widened to $37.8 billion

• Growth may moderate in coming quarters

• Global uncertainties remain (trade tensions, Fed policy)

Your portfolio is designed for exactly this environment—capturing growth while protecting against surprises.

What We're Seeing in Your Three Core Holdings

Your Equity Allocation: Quality Over Momentum

What's working: Corporate earnings are strong. The companies in your portfolio reported 10.6% sales growth last quarter. Steel and cement production—key infrastructure indicators—are up 14.8% and 7.3% respectively. This validates our focus on sectors benefiting from India's infrastructure push.

What we're watching: Not everything is accelerating. Petroleum consumption grew just 2.4%—suggesting consumer and industrial demand isn't as robust as headline numbers indicate. Some tech stocks are priced for perfection.

Our positioning: We're maintaining your equity exposure but staying selective. We're focusing on companies with:

• Reasonable valuations (not chasing momentum)

• Strong balance sheets

• Actual earnings growth (not just projections)

• Exposure to structural themes (infrastructure, domestic consumption)

Recent action: We've been participating in select IPO opportunities where valuations are reasonable and fundamentals are solid. The primary market is vibrant—Rs 4.0 lakh crore raised in H1 versus Rs 3.3 lakh crore last year—but we're being choosy.

Your Debt Allocation: Finding Value in Bonds

What's working: With inflation at 0.3% and 10-year G-sec yields at 6.52%, real yields are now deeply positive. Your debt holdings are providing stability while earning attractive returns.

Credit markets are healthy—lending rates have declined 24 basis points, and financial resources to the commercial sector grew 24%. This supports economic growth without creating excessive leverage.

What we're watching: The yield curve is steepening (longer-term rates rising faster than short-term). This suggests the market is pricing in future government borrowing needs and potential fiscal pressures.

Our positioning: Your debt allocation is weighted toward:

• Quality corporate bonds offering better yields than government securities

• Shorter to medium duration to manage interest rate risk

• Diversification across issuers to minimize concentration

Why this matters: If equity markets correct, your debt holdings provide ballast. If inflation stays low, your real returns stay attractive.

The Strategy Behind Your Mix: Balance, Not Bravado

Here's our thinking on your current allocation:

Why we're staying invested in equities:

• India's structural growth story is intact

• Corporate earnings are improving

• Infrastructure spending continues

• Domestic consumption is resilient

Why we're not going all-in:

• Valuations in pockets are expensive

• Global uncertainties could trigger corrections

• Some economic indicators show mixed signals

• Markets are ahead of fundamentals in some sectors

Why debt matters now more than ever:

• Real yields are attractive for the first time in years

• Provides portfolio stability

• Allows us to rebalance if equity valuations become compelling

• Generates steady returns while we wait for better equity entry points

Three Things We're Doing Right Now

1. Harvesting Gains Selectively

In funds that have run up significantly and where valuations no longer make sense, we're booking profits. Not wholesale selling, strategic trimming. This locks in gains and creates dry powder for better opportunities.

2. Adding to Quality on Weakness

When good companies see temporary price dips due to market sentiment rather than business fundamentals, we're adding exposure. Quality at reasonable prices is rare—we're not letting it slip by.

3. Maintaining Your Strategic Debt Allocation

Even as equity markets rally, we're not reducing your debt allocation. It's not deadweight—it's strategic capital that provides:

• Stability during volatility

• Positive real returns in low inflation environment

• Ammunition to deploy when equity valuations become attractive

What to Expect in the Coming Quarter

Likely scenarios:

Scenario 1: Goldilocks Continues (40% probability) Growth stays strong, inflation remains benign, markets grind higher. Your portfolio benefits from equity exposure while debt provides steady returns.

Scenario 2: Growth Moderates, Markets Consolidate (35% probability) GDP growth normalizes to 6-7%, markets take a breather after recent rally. Your balanced portfolio outperforms pure equity portfolios. We use any correction to add quality names.

Scenario 3: External Shock (25% probability) Global trade tensions escalate, Fed policy shifts, or geopolitical event triggers correction. Your debt allocation provides downside protection while we deploy capital at better valuations.

Our job: Position you to benefit in Scenarios 1 and 2, while protecting you in Scenario 3.

Your Questions, Answered

Q: Should I be worried about the market rally?A: Not worried—but watchful. The rally is based on real earnings growth and economic momentum. But some valuations have gotten ahead of fundamentals. We're managing this through selectivity, not by exiting markets.

Q: Is 0.3% inflation sustainable?A: Probably not. Weather-driven food price declines and GST cuts are temporary factors. We expect inflation to normalize toward 3-4% in coming months. But even at those levels, real yields remain attractive.

Q: What about global trade tensions?A: They're real and could impact export-heavy sectors. We're monitoring closely. Your portfolio emphasizes domestic consumption and infrastructure themes that are less vulnerable to external shocks.

Q: Should I add more money now?A: Depends on your personal situation, but generally yes—if you're investing for 3+ years. Markets at all-time highs can feel uncomfortable, but timing the market is harder than time in the market. We'd deploy new capital gradually over 3-6 months rather than all at once.

What Hasn't Changed: Our Investment Philosophy

Market conditions shift. Sentiment swings. But our approach remains consistent:

1. India's Long-Term StoryWe remain convinced India is in a multi-decade growth trajectory. Demographics, infrastructure investment, digital adoption, and stable governance provide structural tailwinds.

2. Quality Over EverythingWe'd rather own great companies at fair prices than mediocre companies at cheap prices. Quality shows up during stress—exactly when you need it.

3. Diversification is ProtectionYour portfolio spans equities, debt, sectors, and market caps. No single position can sink you. No single position needs to save you.

4. Discipline Beats EmotionMarket euphoria tempts you to chase. Market fear tempts you to flee. We do neither. We stick to process, rebalance systematically, and let compounding work.

Looking Ahead: Q4 FY26 and Beyond

The final quarter of FY26 will bring clarity on several fronts:

• Will corporate earnings sustain momentum?

• How will government spending evolve as fiscal year closes?

• What happens with India-US trade negotiations?

• Does inflation stay benign or start normalizing?

We don't need to predict every answer. Your portfolio is positioned to handle multiple outcomes.

What we'll continue doing:

• Monitoring valuations closely

• Rebalancing as needed

• Adding quality on weakness

• Protecting gains where appropriate

• Keeping you informed

What we won't do:

• Chase momentum stocks just because they're going up

• Reduce exposure based on fear or headlines

• Make dramatic shifts based on short-term volatility

• Compromise on quality for yield

Final Thoughts: Partnership in Uncertain Times

Markets will do what markets do—oscillate between optimism and pessimism, often overshooting in both directions. Our job is to keep you grounded.

Your wealth isn't built by perfectly timing every market move. It's built by:

• Staying invested in quality assets

• Maintaining discipline through cycles

• Taking emotion out of decisions

• Focusing on what we can control

India delivered 8.2% growth while inflation dropped to 0.3%. That's remarkable. Your portfolio has participated in this strength. But we're not declaring victory—we're staying focused on the next trade, the next quarter, the next opportunity to add value.

As Chanakya said: "As soon as the fear approaches near, attack and destroy it." We're not paralyzed by market uncertainty. We're actively managing through it.

Thank you for your continued trust. If you'd like to discuss your specific portfolio positioning or have questions about how these market dynamics affect your personal situation, please don't hesitate to reach out. Here's to building wealth with discipline and clarity.

Warm regards,

Team Cambridge Wealth