The Golden Thumb Rule: Valuations Are Like Gravity—Timeless Investing Principles Still Hold: Ambit’s Nitin Bhasin

In an era where artificial intelligence, new-age businesses, and a surge of IPOs are reshaping India’s markets, one principle remains constant—valuations.

Nitin Bhasin, Head of Institutional Equities at Ambit Capital, believes that while technology and market dynamics may evolve, the golden thumb rule of investing continues to rest on timeless fundamentals.

In a wide-ranging conversation with ETMarkets for The Golden Thumb Rule, he explains why valuations are like gravity in the investment universe, how India’s growing risk appetite is transforming capital markets, and why investors must anchor themselves to principles even as AI accelerates the pace of change.

Edited Excerpts –

Kshitij Anand: Let us start with the big picture. India seems to be at an inflection point with AI disruption, the rise of new-age companies, a surge in IPOs, and shifting investor behaviour. How do you see these forces shaping our markets over the next few years?

Nitin Bhasin: Yes, this is the kind of question one can keep discussing at length for hours. Ours is a country that is continuously under development. We are all a work in progress. And every time you travel, you see many things happening. But sticking to the question you asked, the big thing that has changed in India is the entire acceptance of risk-taking, and that is visible in what is happening in the equity markets.

A country that was obsessed with physical savings, whether gold or real estate, now shows a surge in the number of Demat accounts and unique Demat accounts, which means so many people are ready to put in money. And not only that, if you were to travel across the country, you can see people investing in angel investing, venture capital, and family offices from smaller cities like Raipur, Patna, and Indore. This shows you that it is not only the IPO boom, but the underlying factor is that India is becoming a land of opportunities, a land of entrepreneurs, and a land of funding availability. Earlier, we were dependent upon global funding, and I think that is one of the big shifts.

The “new age” you mentioned perhaps goes back 25 years in India when the telecom revolution started. At that point, a cell phone was just for voice communication. But now, with data rates being so low and Indians consuming data so massively at such cheap rates, it shows the awareness of global trends, trends happening in metro cities, and even in smaller cities. Alongside this, people are choosing to consume wherever they live rather than having to travel to a special destination.

So, when you look at new-age companies, they are actually bringing the data footprint not only to the rich but also to the middle class, the lower middle class, and even the poor—data is available to all. I would say we have only seen the early days of new-age companies. The next five years could see new-age companies being built around the data of Bharat, not just the top 50 million users of India.

You also mentioned AI. I think AI is an overused word in everything. At the same time, it is a reality that everybody will have to learn—just like we all learnt English, or how to use Excel, we will all have to learn how to use AI tools. The good part is that an AI tool can be conversational—you don’t necessarily have to learn Excel formulas, but AI will become part of life. I was listening to one of the global investors say that refrigeration led to Coke becoming successful. Could AI be that “refrigeration” for new business models?

To close on this shifting landscape in India, I would go back to what I mentioned earlier: the growing risk appetite is creating capital capacity in India. Then, we are seeing new-age companies turning data into business, and AI perhaps making this much faster for a multilingual society and country like ours.

The fourth big thing that is playing on my mind is how India is becoming a very connected country from what was once a very disconnected one. Multiple networks—from basic things like roads, electricity, and aviation to information about individuals and their spending behaviour—are gathering pace. This is actually making India a much more interesting and connected market, whether someone wants to build a pan-India national business or a selective audience business. You can see Amazon and Flipkart thriving because of this.

Kshitij Anand: Now, let me also quickly move on to my next question. In such fast-changing times, the temptation is to chase trends, but you have always advocated for principle-based investing. Why do you think these timeless rules matter more at this point in time?

Nitin Bhasin: One of the most important things we all talk about is how we choose companies. But as the hair turns grey and you meet more companies and more investors, the first thing that stands out—something underappreciated in the beginning—is valuations.

Valuations are like gravity on earth. You can have velocity, you can go wherever, you can build the best ship, but you cannot escape gravity. Escape velocity is very rare, and escaping gravity does not exist. Valuations are that kind of gravity. But we also know it is a function of demand and supply. India has seen one big change, where a typical business once traded at 16 times, and today it may be trading at about 36 times because the supply and demand equation has changed. That is a regime change in the multiple. So, the first principle is: never lose sight of valuations.

But the question is, what is valuation? The way we look at it, valuation is about imagining what is possible for a particular company—the management you have today, the competitive advantages it has today, the opportunities that could arise tomorrow in that industry, and whether this management, with these advantages, can exploit those opportunities and deliver growth. That shows you the possibilities of these businesses. Discount them to today and you get a valuation. Otherwise, saying 16 times, 26 times, or 36 times has no meaning.

The second principle, closely connected to valuations, is the quality of management. How have they behaved in times of change in the past? Have they built a business on the basis of balanced risk-taking or complete risk avoidance? How do they handle trial and error? How do they question themselves today for a different tomorrow? This is what leads to competitive advantages either becoming stronger or weaker for the future.

We don’t want to invest in yesterday’s advantages for tomorrow. That is where management quality and competitive advantage come in.

The third point is that, many times, we try to be crystal-ball gazers. But an investor should always consider the past behaviour of management—and also their report cards. Can I trust the accounts of the company? Do the numbers make sense? Does everything add up? Because investing is simple, but not easy—or you could also say investing is easy, but not simple. Once you build those frameworks, you realise timeless principles always remain: valuation, the people behind the company, competitive advantages for tomorrow (not today), and finally, the track record and quality of the company.

Whether it is a large bank like Axis Bank, which has gone through a leadership change and become very different, or a small company like Page Industries or Shree Cement—promoters and management quality have built these businesses in unique ways. So at a high level, investors should always focus on these four principles.

Kshitij Anand: Let us also quickly touch upon one of the things you said—that if your skill can be automated, it probably will be. That is a sort of wake-up call for some professionals, and even investors should prepare for an AI-led future. According to you, what is the golden rule here? Should investors go for AI plus trading or AI plus investing as the next frontier?

Nitin Bhasin: As I said in the beginning, AI is a tool, very similar to how Excel became a tool about 20 years ago. Earlier, many calculations were done on calculators or even mentally—like what the market cap of a company could become. What Excel did was help us do certain base-level jobs much faster.

I don’t think AI changes the world for an individual investor who is focused on a small portfolio. For an investor operating in global markets, however, it can make a difference—because when they are looking for the top 25 stocks across the world to own, it helps them. Otherwise, for an individual investor, it may only help in accessing and processing information faster. Decision-making will still rest with the individual.

But for analysts, salespeople, or mutual fund managers handling 150–200 stocks, AI can be a boon. It can help track changes in estimates, changes in commentary, and make comparisons—because sometimes the brain gets overloaded. Multiple tools are already emerging globally. In our team, we are also using a few. People are experimenting with different offerings.

I think the world will change on three fronts. First, real-time information. This will also create noise, because people may overreact in real time. As information and first-level analysis travel much faster and deeper, diffusion will be much faster, just like in chemistry. So, the first risk of AI is that it accelerates workflows and overreactions.

Second, Indian companies often evolve in ways similar to what has happened in the US or China. Many times, sitting in India, it is hard to understand how history abroad can shape Indian businesses. AI can help us track global peers, their capital allocation, and their operating models—things that are otherwise very difficult to monitor. Conversational AI tools can help here.

Third, India is no longer a 150-stock market. After the last three years of listings, it has become closer to a 500+ stock market for institutional investors, and perhaps a 1,000-stock market for individual investors. How do you create filters, more nuanced filters, and extract insights? Depending on your time horizon and the universe you want to operate in, AI tools will need to be customised.

At the end of the day, most AI tools will be about information processing and signal generation. But what remains key—the golden thumb rule—is: what do you want out of it? Everyone will ask for different things. A hedge fund’s needs will differ from a family office’s, which will differ from a mutual fund’s.

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