In a recent conversation with Vikas Khemani, Founder & Chief Investment Officer of Carnelian Asset Management & Advisers, we gained clear insight into his views on the Indian market’s trajectory and the specific sectors that stand out for him under current conditions. What emerges is a confident, structurally-based bullish stance, grounded in earnings momentum, policy tailwinds, and selective sector exposures.
The Big Picture: Why the Market Outlook Is Positive
Khemani starts by assessing the recent political backdrop — the strong showing by the ruling alliance in the state election — and immediately tempers any over-interpretation. While he acknowledges it drew some market attention, he deems it “just one more state election” and unlikely to drive any major macro shift. That underlines his focus: longer-term structural drivers rather than fleeting political sparks.
His bullish tone rests on three key primers:
-
The second half of the year is expected to deliver strong earnings growth, largely because prior policy and rate easing have already set the stage.
-
The macro framework — easier liquidity, growth-boosting government policy, and a proactive central bank — is intact.
-
Market valuations are “reasonable”, and with earnings improvement, he sees “the stores are in favour” for the next 12 months or more.
Sector 1: Banking & Financials
Khemani indicates that his portfolio has “been quite heavy” on banking stocks, reflecting his conviction in the credit-cycle pick-up.
He points to multiple interlocking dynamics:
-
Credit growth has been subdued, in part due to prior liquidity constraints and deposit pressure. But with interest rates lower and demand for working-capital and MSME finance reviving, there is room for re-acceleration.
-
The regulator has also leaned growth-supportive: e.g., loan-against-shares limits increased, M&A funding relaxed — all of which send plural signals of intent.
“When your regulator is giving you clear message and opening up more and more spaces where growth can come … I see no reason why credit growth will not happen.”
For investors, this suggests financials are not just exposed to rising interest rates or margin cycles but are riding a structural improvement in asset quality, demand and regulation. Banking and financials therefore make his list of core overweight sectors.
Sector 2: Automobiles & Consumer
The second big theme: domestic demand-driven plays, specifically automobiles and consumption names.
Khemani narrates: after the mid-August announcement of anticipated GST rate cuts, his team increased allocation to auto and consumer names. And now he expects further upside. Key drivers:
-
A revival of consumer demand, after the prolonged period of constraint, is now evident.
-
Autos tend to show strong leverage when policy impetus (tax cuts, incentive schemes) aligns with demand momentum.
-
While prior quarters triggered earnings questions in some pockets, he believes the tide has already turned and now it's time for “coming back” of those stocks as earnings improve.
Thus, for those looking for sectors beyond financials that ride India’s domestic demand story — auto and consumer names make the list.
Sector 3: CDMO / Manufacturing / IT
Khemani’s third chosen area is broader: a blend of contract development & manufacturing organizations (CDMO), manufacturing in various spaces, and incremental IT additions. The logic:
-
India is increasingly a beneficiary of global supply-chain re-shoring, localisation, and higher manufacturing intensity.
-
In the IT space, after a strong last 12 months, he wonders whether specific additions now may make sense for the next 12 months — given tailwinds from digitalization, exports and structural demand.
“Incrementally we are looking for a little bit more IT addition… we might probably add more specific on the financial space.”
-
The interplay between manufacturing / CDMO and IT is that both reflect India’s structural role in global production and services chains — not just domestic demand.
For a balanced investor portfolio, this sector plays the role of structural growth rather than just cyclical revival.
Putting It All Together: Strategy & Risk Management
What stands out is Khemani’s disciplined approach: he does concentrate bets, but within a well-thought framework. He emphasises:
-
No major re-jig beyond what he described (increase banks, consumer, some IT) — meaning the changes are incremental and structural not reactive.
-
The view that earnings will improve (“analysts will be upgrading”), so risk is weighted to the upside rather than the downside.
-
But he acknowledges there will be draw-downs: “Short-term volatility… will happen” — the mantra is conviction plus patience.
