Portfolio Review – 4Q FY26

Our portfolio companies reported revenue growth of ~24% YoY during the quarter, a further step-up from the ~20% reported in Q3FY26, and well ahead of the broader benchmark. Earnings growth was stronger with portfolio-level PAT growing 36% YoY, outpacing the benchmark’s 21% by with significant difference.

Supply chain disruptions and elevated oil prices through the final weeks of the quarter compounded by the West Asia conflict weighed on many companies reliant on global supply chains and oil imports. Our portfolio’s earnings growth was strong even when the condition was difficult. This reflects the business we own where pricing power remained intact and cost structures stayed disciplined.

Portfolio Performance Overview:

Note: For year-on-year (YoY) comparisons, we have used a rolling four-quarter format – Q1FY26 to Q4FY26 compared with Q1FY25 to Q4FY25. This approach allows us to better assess the portfolio’s growth by minimizing the impact of quarterly seasonality. *Excludes the company which made net loss either in FY25 or FY26.  Itus Portfolio EBITDA margin is slightly below Nifty 50 because for banks and NBFC, EBITDA margin proxy would be PPOP/ net total income. Nifty 50 has an exposure of 33% to Banks and NBFC where the average of 9 companies PPOP/ net total income was more than 45%. Itus portfolio has a bank and NBFC exposure of 14%.

Gross Margin Performance:

Exhibit 1: Gross Margins for Itus Portfolio over the last 7Q

Sector exposure (in Exhibit 2) continues to reflect our preference for businesses where earnings visibility is anchored in hard asset characteristics, supply-side discipline, and structural demand. Our overweight’s in mining, capital goods, logistics, and power are directed toward sectors where domestic capex and the energy transition provide a durable earnings backdrop and we added to both capital goods and power this quarter as that visibility became increasingly tangible.

* Green shading indicates overweight positions; Red shading indicates underweight positions relative to benchmarks

Exhibit 2: Top 10 sectors for Itus by weight against benchmarks

We remain selectively overweight in chemicals and logistics & ports, where the medium-term earnings trajectory continues to support our positioning. On the other side, we trimmed banks and financial services, where near-term earnings visibility has moderated relative to other opportunities within the portfolio.

Against this backdrop, we highlight below the structural themes that continue to underpin our portfolio positioning and earnings visibility beginning with India’s power and industrial investment cycle.

Powering India’s Investment Cycle:

India’s electricity generation and demand have grown at 6% and 5% CAGR respectively over FY21–26, compared with 5% and 3.5–4% in the FY12–20 period. This step-up in power consumption has occurred alongside strong capital goods and infrastructure activity, a rising pipeline of private capex announcements, and improving industrial credit growth — a combination of indicators that points to a broadening of the industrial investment cycle.

Within generation, solar and wind have continued to add capacity at a rapid pace, but thermal still accounts for the largest share of supply. The mix highlights the need for sustained investment across both thermal and renewable infrastructure if the country is to meet rising demand without supply-side constraints.

Source: Thurro

Capital goods activity and the broader investment cycle:

Capital goods IIP has been trending higher in recent months. An expanding IIP for this category typically reflects factories ordering equipment, utilities buying power infrastructure, and a broader pickup in industrial capex — making it a useful proxy for investment into productive capacity. The relevant question is whether this is translating into actual capital being deployed on the ground. We track this through two indicators: overall system and industry credit growth, and the pipeline of private capex announcements.

While private capex announcements were flat in FY26, the 5-year compounded growth has been ~35%, driven by manufacturing, electricity, and services — with manufacturing and electricity together accounting for ~68% of total announced outlay. Credit deployment to industry grew 9% in FY26, and on a 3-year rolling basis (FY23–26) industry credit growth stands at 11%. The last time industry credit growth held in double digits on a rolling basis was the FY12–15 period.

Where do we go from here

India’s peak power demand in May 2026 touched 271 GW — 11% higher than the peak seen in FY26, with government estimates pointing to 277 GW in FY27. The National Electricity Plan envisages investments across generation, transmission, and distribution: transmission capex is expected to exceed ₹9 lakh crore, 500 GW of renewable capacity is targeted to be online by 2030, and 80 GW of incremental coal-based capacity is expected to be added by FY32.

Taken together, these commitments translate into sustained demand for power equipment, transmission infrastructure, and industrial machinery. Given that power is both a leading indicator and an enabler of industrial activity, we expect the trickle-down effects to extend well beyond the immediate beneficiaries into the wider manufacturing ecosystem.

Portfolio Positioning: Capital Goods, Power, and Manufacturing

At Itus, our portfolio carries exposure across the capital goods, power, and manufacturing value chain — businesses that we believe are well placed to capture the tailwinds of the rising industrial activity. Within capital goods, our preference is tilted towards franchises positioned at the intersection of grid digitisation, transmission build-out, and the broader industrial capex revival. Within metals and mining, our exposure is anchored in base metals linked to electrification, batteries, and transmission infrastructure — areas where structural demand is expected to compound through the decade.

The pace of this investment cycle, however, is closely linked to the availability and cost of credit — which brings us to the banking system, where FY26 has marked a clear inflection.

MSME and Corporate Credit Drive a Strong FY26 Credit Upcycle

System-level credit growth accelerated to ~17% YoY in FY26, a meaningful step-up from ~11% growth in FY25. The acceleration was led by MSME (+29% YoY) and corporate lending (+17% YoY), with retail credit (ex-gold) improvingmore modestly to ~12% YoY. Loans against jewellery were the clear outlier, growing 124% YoY on the back of rising gold prices and structural formalisation of gold lending.

Corporate growth was driven by a sharp pickup in power sector credit (+22%), NBFC lending (+27%), metals and metal products (+20%), and chemicals (+15%). The modest retail picture reflected low-teen growth in housing and low single-digit growth in credit cards, with vehicle finance (+19% YoY) a bright spot.

Policy Enablers Behind the MSME Pickup
Two policy actions have materially expanded the addressable lending pool for banks. First, the CGTMSE ceiling was raised from ₹5 crore to ₹10 crore, effective April 2025. Second, the introduction of the Mutual Credit Guarantee Scheme (MCGS-MSME) supports manufacturing capex of up to ₹100 crore. Together, these schemes expand collateral-free, guarantee-backed lending — directly de-risking MSME credit and unlocking supply previously constrained by underwriting and collateral considerations.

Large Banks vs. Mid-Size Banks
Large banks — contributing ~56% of total system credit — saw average AUM growth improve to 15% in FY26 (vs.9 % in FY25), supported by MSME growth above 20% and a steady pickup in corporate credit to 19%. Mid-size banks, with a higher tilt towards gold and MSME, posted average AUM growth of 18% in FY26 — driven by robust gold loan book growth of 30%, MSME (+17%), and corporate (+18%).

Insurance: Health Anchors Growth, Life Navigates the Rate Cycle

General Insurance: Health as the Structural Growth Driver

The reduction of GST on health insurance premiums from 18% to 0%, effective Q3 FY26, has materially improved affordability in an underpenetrated market and provided a strong demand impetus. The share of health insurance within overall GDPI has risen from 31% in FY21 to 40.5% in FY26, with total health growing at ~19% CAGR over the last five years. While the pace of growth has moderated from mid-20s to mid-teens in FY26, retail health has outpaced total health from FY25–FY26 — a sign that individual purchases, not just group health, are anchoring the next leg of the story. Our preference remains for insurers with meaningful health exposure, strong underwriting discipline, and superior combined ratio profiles.

Life Insurance: Navigating the Interest Rate Cycle
The historical relationship between repo rates and Life Insurance APE growth held consistently through FY22–23:rising repo rates supported APE growth in the 15–19% range as non-par guaranteed savings products became a dominant distribution narrative. That relationship broke in FY24 — not because of a change in repo rates, but because of a regulatory reset: IRDAI’s new surrender value norms reset the economics of non-par savings, and APE growth dropped to 4.1%.

APE grew 8.8% in FY25 and is expected to grow ~12% in FY26, even as the RBI has reduced policy rates to 5.25%. The growth this time is driven by protection and ULIP-linked annuities, which are structurally less tied to the rate cycle. Falling rates have, if anything, supported these flows — customers are locking into guaranteed payouts as the broader yield environment softens.

Portfolio Positioning: Insurance
Within general insurance, our exposure reflects a preference for franchises with high-quality health books, disciplined underwriting, and a track record of stable combined ratios — operators best placed to convert premium growth into earnings growth as the cycle matures. Within life insurance, our anchor exposure is to franchises with a higher share of VNB coming from protection products and ULIP flows tied to equity marketlinked businesses — a mix structurally better placed to navigate the current rate cycle than one anchored in rate-sensitive guaranteed savings.

Portfolio Implications and Watchpoints

Q4FY26 earnings delivery reinforces the pattern observed through the year where portfolio-level growth materially ahead of the benchmark driven by business where pricing power remained intact, and cost structures stayed disciplined, even as supply chain disruptions and elevated oil prices weighed on broader corporate earnings.

The power sector remains the clearest indicators of the current industrial investment cycle in the country. This underpins our exposure across capital goods, power and manufacturing companies. Going forward the key monitorable are going to be – peak power demand, industrial credit growth, private capex execution and pace of power sector investments, these will indicate the durability of the cycle.

The FY26 credit upcycle marks a structural shift in the growth mix away from retail toward MSME and corporate with policy tailwinds meaningfully expanding the addressable lending pool for banks with the underwriting capability to participate. The bifurcation between large and mid-size banks in terms of segment tilt and growth outcomes reinforces the importance of portfolio construction across both ends of the banking spectrum.

On the insurance side health insurance is gaining share within general insurance and protection led growth is improving the quality-of-life insurance new business. This is reflected in our positioning with companies having strong health franchises, disciplined underwriting and higher contribution from protection and market linked products. Key monitorable going forward will be – health insurance growth, underwriting performance, ULIP flows and regulatory changes.

Taken together, these developments continue to shape our portfolio positioning across sectors.

Key Positioning Takeaways:

• Focus on companies with disciplined cost structures that can compound earnings independent of a benign macro environment
• Portfolio constructed across large and mid-size banks, capturing MSME and corporate-led growth across both
• Exposure across capital goods, power and manufacturing companies to capture the tailwinds of industrialization
• Positioning in companies with strong health franchise, disciplined underwriting and stable combined ratios

Key Watchpoints:

• Oil price trajectory and its pass-through effect on margins for import-dependent businesses
• Ability of companies to pass through increased input prices and their ability to maintain market share
• Trajectory of corporate credit growth across power and NBFC sectors as key drivers of the upcycle
• Private CAPEX execution and power sector investments

Portfolio Summary:

Our stock selection and sector positioning reflects this dynamic. To summarise, the below table gives an overview of the health of our portfolio as of Q4FY26 (with the snapshot as of May 2026).

Note: The sum of above weights would not total up to 100%; remaining would be our cash holdings.

Team Itus

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