Investors chasing ‘earnings’ set for big mistakes, says Ikigai's Pankaj Tibrewal

Investors chasing ‘earnings’ set for big mistakes, says Ikigai's Pankaj Tibrewal

Investors chasing headline earnings while ignoring weak cash flows are setting themselves up for “potentially large mistakes,” warns IKIGAI Capital’s Pankaj Tibrewal, who sees the disconnect most visible in crowded pockets such as renewables and electronics manufacturing services (EMS). Tibrewal was speaking to Moneycontrol on the sidelines of PMS Bazaar's PMS AIF Summit 2025 8.0.

“People are just following earnings growth. Very few are focusing on the balance sheet. Hardly anyone looks at cash flows,” Tibrewal said. “If balance sheet and cash flows don’t follow earnings, you end up making large mistakes.”

He pointed to the renewables and EMS pipeline as the clearest example of this gap. Despite a surge of IPOs across these sectors last year and seemingly “stupendous earnings growth,” the expansion is almost entirely working-capital-led, he said. “They’re raising capital or debt to support that growth. That is not sustainable.”

Tibrewal argues that the pattern reflects a broader market trend where performance is being driven by narrow growth pockets and the base effect of earlier weak quarters, amplifying valuation momentum without underlying strength.

One exception, he said, is banking. “Banking has started to stabilise as earnings quality improves. The worst of earnings is behind. Both private and PSU banks have rebounded,” he noted, citing cleaner balance sheets and more predictable earnings.

On private markets, Tibrewal sees similar excesses brewing although he clarified he does not track private market valuations in detail. “I think there is a frenzy running in private markets also. In public markets there is an exit available; in private markets there is no exit,” he said, adding that the absence of liquidity makes exuberance harder to correct.

The common thread across markets, he said, is investors running ahead of fundamentals. “Unfortunately, the market is not looking at basic hygiene right now... risks are brewing, and one can lose capital.”

On future of AIFs

Alternates, he believes, will continue to grow because mutual fund sizes have become too large to execute differentiated strategies. “Fund sizes in mutual funds have become Rs 10,000 crore to Rs 30,000 crore. Implementing ideas becomes difficult. Alternates offer that opportunity,” he said.

But he cautioned that many AIF managers are untested, with the last four years shaped by a liquidity-fuelled upcycle that masked risk. “Many managers have not seen cycles. The last 12 months have been challenging — they are only now understanding risk,” he said.

Tibrewal expects regulatory oversight on AIFs to eventually converge with mutual fund-style frameworks. “What regulations are for mutual funds will ultimately come to alternates. As manufacturers, you need to be proactive, not reactive,” he said, adding that IKIGAI has already adopted MF-type safeguards such as internal auditors and dealing-room separation.