From Retail to Institutional: Building Portfolios That Withstand Market Cycles

By Ashwini Shami, Executive Vice President & Portfolio Manager, OmniScience Capital

The Unchanging Truth About Markets

Every market cycle delivers the same harsh lesson: wealth creation requires more than riding the next wave. Markets reward discipline and punish recklessness with mathematical precision. A portfolio that loses 50% needs a 100% gain just to break even—a stark reminder that preservation must come before compounding.

For High Net Worth Individuals (HNIs) and institutional investors alike, the real challenge isn’t finding growth opportunities but identifying growth opportunities which are still below the radar. It’s building portfolios that compound consistently across cycles while avoiding permanent capital destruction that derails long-term financial goals.

Why Traditional Approaches Fail

The investment landscape is littered with strategies that shine in bull markets but crumble in downturns. Momentum chasing, headline-driven sector rotation, and macro-timing have repeatedly failed to protect capital when it matters most.

These approaches share a fatal flaw: they prioritize short-term performance over long-term resilience. True wealth building demands a framework that treats investing as science, not speculation. This means focusing on fundamentals over sentiment and maintaining valuation discipline over return chasing.

A Disciplined Investment Framework

Market history reveals that certain principles consistently prove effective across cycles. Three stand out as non-negotiable:
Discount to Intrinsic Value: Invest only when businesses trade at meaningful margins of safety below their true worth. This approach reduces permanent capital loss probability and positions portfolios to benefit as markets eventually align with business reality.

Alpha from Safety: Returns must be evaluated relative to fundamental risks taken. Strong balance sheets, robust cash flows, and sustainable business models matter as much as headline performance numbers. Success isn’t about the highest returns—it’s about the most sustainable ones.

Structural Downside Protection: Market corrections are inevitable, but their portfolio impact can be mitigated through disciplined diversified exposure to multiple growth vectors with strong long-term growth drivers, inherent resilience and overvaluation controls.

Tailored Approaches by Investor Type

High Net worth Individuals

HNIs often possess appetite for aggressive compounding but may lack structured frameworks to pursue it safely. Their focus should emphasize:

•     Diversification with Intent: Avoiding excessive concentration in overheated assets while maintaining meaningful positions in quality opportunities

•     Valuation Discipline: Building portfolios that capture long-term growth vectors at discount to intrinsic value and avoid chasing Mr. Market favourite stories.

•    Structured Allocation: Maintaining a structured diversification across asset classes and growth vectors based on the fundamentals and relative valuations.

The objective is participating in growth while ensuring resilience through inevitable volatility.

Institutional Investors

Pension funds, endowments, and family offices face different challenges: balancing ambitious return targets with fiduciary obligations. Their requirements include:

•     Repeatable Strategies: Rules-based approaches that withstand both regulatory scrutiny and market turbulence

•     Valuation Discipline: Transparent, defensible portfolio construction methodologies

•     Scalability: Frameworks that allow substantial capital deployment without sacrificing investment quality

For institutions, consistency often proves more valuable than outperformance in any single cycle.

Sectors with Enduring Potential

India’s market offers over 7,500 listed companies, but only about 4,000 are actively tradable and around 1500 are investible. Identifying opportunities requires focusing on sectors structurally aligned with long-term growth themes:

Banking & Financial Services: Driven by savings financialization, digital adoption, and expanding credit penetration across demographics.
Clean Power & Energy Transition: Critical as India pursues sustainability goals and net-zero commitments while meeting growing energy demands.

Manufacturing & Industrial Services: Benefiting from PLI schemes, supply-chain diversification, and “China+1” manufacturing trends.
Commercial Services & Logistics: Integral to India’s consumption growth and export expansion across sectors.

Railways, Defense & Infrastructure: Anchored by government spending priorities and self-reliance imperatives.

These sectors, approached with valuation discipline, offer compelling combinations of growth potential and downside resilience.

The Mathematics of Compounding

One of investing’s most underappreciated aspects is the asymmetric impact of losses. A 50% drawdown requires 100% gains just to recover original capital. Avoiding deep setbacks therefore becomes more important than capturing every rally.

This underscores the importance of focusing on companies with three characteristics: strong fundamental performance, robust governance structures, and predictable cash flow generation. Such businesses don’t just grow in favorable conditions—they endure challenging environments and emerge stronger. This combined with valuation discipline from the investor can help generate sustained portfolio performance.

Actionable Implementation Guidelines

Regardless of portfolio size or investor type, certain principles apply universally:

1.    Always Demand Margin of Safety: Most investment mistakes are avoided at entry by refusing to overpay for assets

2.    Adopt Systematic Frameworks: Replace ad-hoc decisions with structured, evidence-based investment processes

3.    Diversify with Purpose: Spread exposure across resilient sectors while avoiding mindless over-diversification

4.    Measure Fundamental Risk, Not Just Returns: Focus on fundamental, valuation and long-term growth outlook rather than absolute past or recent performance

5.    Think in Cycles, Not Quarters: Judge success over complete bull-and-bear cycles rather than short-term snapshots

The Path Forward

The future of wealth management—whether for individuals or institutions—lies in resilience, discipline, and scientific investing. The principles remain timeless: preservation enables appreciation, risk management enables sustainability, and disciplined frameworks enable consistency.

Markets will always deliver the next test. The question isn’t whether another cycle is coming, but whether portfolios are designed to withstand it. Those who prepare with discipline and foresight will not only survive market turbulence but compound wealth across generations.

India’s equity market ranks among the world’s most vibrant, but also most challenging. Success requires more than enthusiasm—it demands discipline, proven frameworks, and strategic long-term thinking that transcends market cycles.