The Green Shoots

For the TL;DR folks:

• After a long time, things are slowly falling into place: the India-US trade deal, FIIs taking a pause in their relentless selling, and most importantly, Q3 results have surprised everyone on the upside.
• Sentiment is slowly turning positive. Liquidity is expected to follow.
• Surge had a decent start in Jan with returns in line with the benchmark at -3.2%. In Q3 till date, the portfolio median revenue growth was at 18.3% & median PAT growth is at 19.2%, which is encouraging. We continue to hold 12% cash, which is expected to be deployed over the next few weeks.
• Momentum is showing early signs of recovery. If the broader market participation continues, we expect momentum also to come back on track.
• On Feb 20th, we are having our Q3 webinar. Please do join.

This is the broad crux of this letter, but in case you would like to read it in full:

Data as of 11th Feb'26 | *Performance net of fees and transaction costs | Taxes as applicable | No other hidden charges | >1 year data is annualized | Performance data is not verified by SEBI | Past performance is not indicative of future results | Investments in securities are subject to market risks. Please read all scheme-related documents carefully

The start of 2026 felt like a continuation of the previous months - volatile, broader markets under pressure, persistent selling from FIIs, and a weak rupee. However, things slowly started to turn (or perhaps, just stopped getting worse) during the first week of Feb. We can thank a combination of strong Q3 earnings and finalisation of the long-awaited India-US deal for this shift in sentiment.

The long-term returns of equity generally depend on two factors: Earnings & Liquidity. Early signs show that both are finally falling into place.

• On the earnings front, Q3FY26 is turning out to be much better than expected. Of the top 100 companies, over 80 have released their results. The median sales growth stands at 11.1% YoY, with median PAT growth at 10.5% YoY. The numbers are even more encouraging for the broad market. Out of the NSE 500, roughly 400 companies have reported. Median sales growth is at 12%, while median PAT growth has surged to 16.7% YoY.
• On the liquidity front, we have witnessed a correction without a global sell-off. The Indian market (represented by the MSCI India Index) is currently lagging emerging markets (MSCI Emerging Markets Index) by around 25% on a rolling one-year basis in dollar terms. On the other hand, for over two years, DIIs have essentially absorbed the liquidity pressure created by FII exits, loss making new age IPOs, promoter stake sales, and PE exits.

It feels as though the pendulum is nearing the other extreme. Just by the law of mean reversion, some sanity should soon emerge. Without the rupee stabilizing & earnings growth mentioned above, this would just be a wish. But since both are happening, it becomes a very reasonable expectation.

The state of the market is slowly turning positive. In technical parlance, we are seeing a shift from sell on rise to buy on dips. The most encouraging sign is the participation from the broader market. These are early signs, but they represent a welcome development.

Sometimes the market turns positive not because of good news, but because of the absence of incremental bad news. We may be in that phase. Most of the bad news is either already being priced in or navigated through. Unless something really turns up out of nowhere, things are expected to stabilise from here on. Let’s see.

Portfolio Updates

Surge India: For Jan 2026, the frontline index Nifty 50 was down -3.1%. Our portfolio performed broadly in line, down -3.2%. However, the underlying fundamental health of the portfolio is robust. As of Feb 10th, 2026 our portfolio median revenue growth is at 18.3% & Median PAT Growth is at 19.2%.

Earnings growth combined with sectoral tailwinds is where we always strive to position ourselves. Recent additions include:

• CV OEMs (Ashok Leyland & Tata Motors): We believe the commercial vehicle upcycle still has legs to go.
• Ujjivan SFB: The MFI sector clean-up is mostly done for the sector (at least for the prudent market leaders).
• SJS Enterprises: A small-cap, debt-free auto ancillary company that looks promising and is also delivering consistently.
• Cash Levels: We continue to hold around 12% in cash, which we will be deploying slowly as and when opportunities arise.

The idea is to position ourselves ready to make the most and participate in the next emerging trend.

Adaptive Momentum: Looks like momentum is slowly coming back in the markets, especially in the last week. Too early to assign a trend reversal, but indeed a good sign. Investors had patiently sat through the downcycle in the last 2 years, with the expectation that if things come back, we shouldn’t be left out. The positive thing in the last week is that broader market participation is strong.

We continue to refine the algorithm through proper backtests and careful implementation. The core idea of owning stocks with strong upward trends remains unchanged. As mentioned earlier as well, I want to assure you that we remain fully committed to this strategy.

Here ends the glass-half-full part. Now comes the other half:

I would like to highlight one particular point that should be the key takeaway from this letter. The post-Covid rally seen in Indian equities was an anomaly, a once in a decade kind of opportunity. Thanks to all central banks around the world unanimously deciding to let the printing press run three shifts per day, 24/7 non-stop. That kind of global liquidity, in all probability, is a thing of the past, at least for the near future. Hence, we should not benchmark our returns against the last 5 years. Just setting the expectations right here.

On Feb 20th, we will host our quarterly webinar to discuss the portfolios, market strategy, and the road ahead in detail. Please do join us. Our team will share more details with you in the next couple of days.

We have started 2026 on a satisfactory note. Wishing to see it continue.

With visible green shoots,

Krishna Appala