Harish Krishnan's Unconventional Strategies for Navigating the Next Market Cycle

Market Leadership Shifts to Underperforming Sectors

Harish Krishnan, a prominent figure in the investment community, believes that the next phase of equity returns will emerge from industries that have underperformed over the past three to five years. Speaking at an investor panel, Krishnan identified nine sectors with improving risk-reward and a stronger margin of safety after prolonged periods of underperformance.

The list of sectors includes IT, banking, energy, metals, chemicals, textiles, FMCG, and cement, which have either experienced earnings slowdowns, valuation compression, or extended consolidation phases despite maintaining long-term structural relevance. While banking and IT remain large-cap heavy sectors, Krishnan argues that opportunities are increasingly shifting towards mid- and small-cap companies in areas such as chemicals, cement, and consumer-facing businesses.

Krishnan pointed to emerging opportunities in consumer businesses, particularly retail-oriented companies generating strong free cash flow yields despite limited institutional ownership. In fact, he noted that for the first time in his career, he is seeing consumer companies with free cash flow yields of 4-5%.

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Krishnan's own fund has already reflected this shift, with large-cap exposure reducing from roughly 78% in mid-2024 to nearly 54% now, and allocations increasingly moving towards mid- and small-cap opportunities. The broader market setup, Krishnan argued, is becoming far more favourable for bottom-up stock picking as sectoral and stock-level dispersion rises sharply.

Krishnan maintained that India's long-term growth trajectory remains intact and advised investors to focus less on short-term volatility and more on sectors where earnings recovery and valuation comfort are beginning to align. The discussion also reflected growing confidence among fund managers that much of the excess froth seen during the post-pandemic rally has now been flushed out of the market after nearly 18 months of correction and consolidation.