Daily Voice: Larger healthcare sector continues to provide exciting opportunities for alpha generation, says TCG AMC Chief

Shahzad Madon is the the MD & CEO at TCG Asset Management Company

Shahzad Madon, the MD & CEO at TCG Asset Management Company believes the CDMO (Contract Development and Manufacturing Organization) sector has further legs to run.

According to him, the conclusion of the Indo-US tariff shall likely lift an overhang from the sector. Further, importantly, the larger Healthcare sector, continues to provide exciting opportunities for alpha generation, he said in an interview to Moneycontrol.

He strongly believes the rally in the consumption space is likely to continue. "Consumerism and premiumisation are multidecadal theme, supported by increasing per capita income, favourable demographics, and evolving societal trends," he said.

We strongly believe that consumption should grow on the backdrop of liquidity infusion and rate cuts by the RBI; income tax reductions and a GST rate cut, which shall be followed by the 8th Pay Commission from government.

Along with consumption, the current investment cycle is far more diversified, structural, and multi-decadal. Investments shall be led by themes such as energy transition, digitalization, defence indigenization, electronics manufacturing, among others. We see a likelihood of further acceleration of the investment cycle, as private sector capex gathers momentum.

We believe it is likely that the trade deal will be finalized sooner rather than later, given the strong economic and geopolitical imperatives for both India and the US.

Both domestic macros and the Indian corporate sector are in great shape and are expected to improve hereon. The risks to our mind are more likely to emanate from financial stress in major developed economies and global geopolitical tensions.

Yes, we strongly believe the rally in the consumption space is likely to continue. Consumerism and premiumisation are multidecadal theme, supported by increasing per capita income, favourable demographics, and evolving societal trends.

India may be entering a virtuous cycle where robust demand lifts capacity utilization, prompting companies to expand capex and spurring fresh private investments. This cycle could reinforce itself, sustaining a multi-year consumption rally.

Pharma is best viewed on a bottom-up basis rather than a sectoral basis. There are various sub-sectors in the pharma space that have performed strongly over the past few years. We believe the CDMO sector has further legs to run. Given, price pressure globally, generics too should do well. That said, the conclusion of the Indo-US tariff shall likely lift an overhang from the sector.

Importantly, the larger Healthcare sector, continues to provide exciting opportunities for alpha generation.

The government and the RBI remain sharply focused on sustaining economic growth and policy measures continue to be firmly supportive. The RBI & GOI, have taken various measures to revive consumption growth, while at the same time not compromising on investment growth as well as the Fiscal position.

Given the above, we believe there is a significant probability of both legs, viz. consumption and investment firing strongly in 2nd half FY26 and beyond. Net, net, we believe economic and corporate earnings growth should revive strongly in the short to medium term and beyond. Assuming no material deterioration in global economic conditions, India could very well deliver growth ahead of current consensus expectations.

From a portfolio standpoint, gold’s recent rally reflects a combination of macro uncertainty, sustained central-bank accumulation, and expectations of policy easing in major economies. Although prices may consolidate in the near term after a strong performance, the medium-term outlook remains constructive. Persistent geopolitical risk, and portfolio diversification needs could support gold at elevated levels.

Given the current positioning of the market, there are no clear pockets of undervaluation/mispricing, so stock selection becomes key. Hence, identifying stocks with earning growth, trading at reasonable valuations is critical for alpha creation.

Two contra views we hold are:

Consumption is a large and discrete basket. Despite stronger topline growth for the most of the sector, given supply side dynamics and starting valuations, not all stocks in the sector might deliver on both profitability and price performance.

Another non-consensus view we hold is that the investment theme could come back strongly, given robust expected earnings growth and 15 months of underperformance of this theme.