PMS Talk: How Rs 50 lakh invested in Karma Capital in 2006 grew to Rs 5.4 crore

What does it take to build wealth over nearly two decades of market cycles? For Karma Capital Advisors, the answer lies in identifying businesses at an inflection point, buying them at reasonable valuations and staying invested as their earnings compound.

An investment of ₹50 lakh in Karma Wealth Builder at its launch in December 2006 grew to ₹5.4 crore by September 2026, compared with ₹4.2 crore had the same amount been invested in the BSE 500 TRI, according to the Karma Capital Advisors Pvt Ltd co-founders, Rushabh Sheth and Nikhil Desai.

In this edition of ETMarkets PMS Talk, the co-founders discuss the lessons from their 20-year investment journey, how they identify companies before their growth stories become market favourites, and why valuation discipline, management quality and capital protection matter as much as returns.


They also share their outlook on India's healthcare and auto component sectors, and explain what investors should evaluate beyond CAGR when choosing a PMS. Edited Excerpts –

Q) Karma Wealth Builder dates back to December 2006. If an investor had invested the minimum ₹50 lakh at launch and stayed invested, how much wealth would that investment have created by September 2026, after fees and expenses?

A) ₹50 lakh invested into Karma Wealth Builder in December 2006 would have grown to ₹5.4 crore by September end 2026 which is nearly 10 times. The same amount in the BSE 500 TRI would have grown to ₹4.2 crore about 7 times during the same period.

Q) What does a nearly 20-year track record teach you about the difference between generating short-term returns and building wealth over an entire market cycle?

A) The biggest lesson is that short-term returns are mostly about what the market is willing to pay for a business, while long-term wealth is about how much that business's earnings compound and the price you paid for them. The two can diverge sharply for years, and our own history shows it. Getting multiple market cycles right while managing drawdowns is far more difficult than getting one cycle right.

Three things follow from that. First, the price you pay is the only variable an investor truly controls, which is why we are Growth at Reasonable Price (GARP) investors and insist on a margin of safety. Second, we define risk as the possibility of permanent loss of capital or a loss over a three-year holding period, not near-term volatility.

Third, investor behaviour and staying invested through uncomfortable phases matter as much as stock selection. Being an employee-owned boutique, with both founders’ managing money with us for 20 years, allows us to be patient and consistent when the market is not.

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Q) Karma Capital manages over ₹7,100 crore across various licences. How has the firm's AUM evolved over the past five years, and what have been the biggest drivers of growth?

A) Over the last five calendar years, firm-wide assets have roughly doubled from about US$400million to about US$830 million across our PMS, AIF and offshore mandates.

The path was not a straight line, and we think that is worth acknowledging because the domestic business is still nascent the growth there is expected to be much faster and more granular.

Two drivers stand out.

First, performance across cycles: strong years such as 2021 and 2023, and a long-term record ahead of the benchmark, have been the firm’s best marketing.

Second, a broader product shelf built on one philosophy alongside the flagship Allcap Karma Wealth Builder, the firm now offers Lotus (mid and small cap), Magnolia (Multicap with a large-cap bias), Jasmine AIF and a GIFT City Fund.

Q) Your investment philosophy focuses on the rate of change in a business rather than just its absolute growth. Can you explain how this helps you identify an opportunity before it becomes popular with the market?

A) Markets tend to price the story, and the story usually lags the business. We think of it as three curves: the underlying business turns first, the stock price follows, and the narrative catches up last.

Our aim is to invest when the business has begun to improve but the narrative is still lukewarm or negative, and to recognise when the narrative is at its peak while the business is already slowing.

That is why we care more about the direction and pace of change than the absolute number. A company whose return on equity is moving from 10% to 16% through better capital allocation, a new product line or a restructured balance sheet is often a better opportunity than one with a steady 25% RoE that is already priced for perfection.

When businesses execute well and their return ratios improve, the market usually re-rates them over time. Being early lets us benefit from both earnings’ growth and that re-rating.

The practical edge comes from doing the work ourselves. More than 80% of our research is in-house, built on management meetings, site visits and conversations with competitors, suppliers and customers.

Robustness of the investment process matters most. We run reasonably concentrated portfolios with low churn, focusing on market leaders at an inflection point where growth and profitability would accelerate.

As they say in investing, “Even if you have bought a great company, if you have overpaid for it, it might prove to be a poor investment.”

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Q) You have indicated an average holding period of around five years. What makes you hold a stock through volatility, and what would prompt you to exit earlier?

A) We hold because of the thesis, not the share price. Every investment begins with a clear view of what has to go right: earnings trajectory, improving return ratios, management execution, capital allocation and milestones we track.

As long as the business keeps reflecting these traits, price volatility does not concern us. In under-researched companies, it is often an opportunity to add. We typically start with a 1–2% position and scale up as the business proves itself.

Over time, both the business and its stock price go through volatility, with the latter often more amplified. The business should continue to grow profitably, gain market share and, most importantly, generate free cash flow. to accelerate growth; however, over time, FCF remains the key driver of long-term value creation.

A structural negative shift in the business whether external or internal, is what leads us to rethink. Even then, we usually exit gradually unless risk control demands otherwise.

Q) The presentation says the firm made money in 90% of stocks over the last ten years. How do you define a successful investment, and what lessons have you drawn from the investments that did not work?

A) Investing 101 teaches us that you should not lose money. When you buy early, with a margin of safety, your losses tend to be few and small. That asymmetry drives long-term compounding.

Our performance has not come from a few stocks but from a broad range of holdings over time. A successful investment is one where the thesis played out for the reasons we expected, the return was adequate for the risk and holding period, and it beat the opportunity cost of owning the index. The 90% success rate matters to us less as a boast and more as evidence that process discipline works.

Twenty years at Karma, have taught us lessons that now shape how we research. Seeing around the corner reduces accidents and minimise blind spots. The key ones:

Management and governance outweigh the spreadsheet. Where we have been wrong, it has more often been on management execution or governance than on the industry opportunity.

Being early is not the same as being wrong but you must know which one you are. We separate a delayed thesis from a broken one.

Cyclical and commodity-linked businesses need a top-down overlay. Operating leverage cuts both ways.
Liquidity matters at the portfolio level.

Q) What should investors look at beyond CAGR when evaluating a PMS with a nearly two-decade track record—drawdowns, volatility, consistency or the ability to recover from losses?

A) All of those, and a few more. CAGR tells you where a manager ended up; not what the journey felt like or whether it can be repeated. Returns are a function of the rigour of the process and consistency of philosophy.

Navigating two decades of volatility takes a process that can withstand the test of time and a team that can generate ideas while managing risk. we believe investors should look at five things:

• Consistency across periods. Look at rolling and multi-period returns, not one headline number.
• Drawdowns and recovery. Every concentrated manager has difficult phases. What matters is whether the process held and how the portfolio recovered.
• Active share and concentration. If you are paying active fees, make sure you get something different from the index.
• What you own, not just what you earned. Examine the quality of the underlying portfolio.
• Stability of people and process. A 20-year track record is meaningful only if the people and philosophy behind it are still in place. Our founders have managed money here throughout, and our research team has worked together for over a decade.

Finally, investors should match the strategy to their own horizon. We invest with a three- to five-year view, and that is the horizon over which our approach should be judged.

Q) Healthcare accounts for 26.9% of the portfolio, while automobiles and components account for 19.6%. What are the underlying investment themes driving these allocations?

A) Healthcare in India provides multiple opportunities. The domestic market is growing at double digits. India is also among the world’s lowest-cost pharmaceutical manufacturers, supplying most large global markets and opening opportunities in both generics and contract manufacturing. These businesses are strongly profitable, and we hold investments across the healthcare value chain.

Similarly, in auto, and most specifically in auto components, a large domestic market is matched by the opportunity to supply to global automakers on strength of India’s cost competitiveness.

Both industries have a common tailwind. Large multinationals are looking to de-risk their supply chains, handing Indian companies a significant opening.

Q) How are you evaluating opportunities in India's manufacturing and industrial ecosystem as companies move up the value chain?


A) As highlighted above, in both healthcare and auto, Indian companies are cost-competitive manufacturers and are becoming part of global supply chains.

We believe similar opportunities will open up across other manufacturing sectors as India scales up to supply the world. The fact the large domestic market is the foundation. It lets many segments build scale not only to serve home market but also global clients.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)