Synopsis

Seasoned investors are prioritizing bottom-up stock selection over broad themes amid market consolidation. Vikas Khemani highlights constructive views on PSU banks and IT services, emphasizing long-term earnings growth and valuation comfort. He expects improved foreign investor flows as global conditions evolve, potentially leading to a market rerating.

Agencies

On flows, while domestic institutional inflows continue to provide strong support to the market, foreign investor participation has remained volatile. Khemani expects that to improve as global conditions evolve.

As Indian equities move through a phase of consolidation amid uneven global flows, seasoned investors are increasingly leaning on bottom-up stock selection rather than broad market-cap or thematic bets. In a conversation with ET Now, Vikas Khemani, Carnelian Asset Management shared his perspective on PSU banks, IT services, manufacturing opportunities and the outlook for market flows.

On whether public sector undertakings still deserve a place in portfolios, Khemani remained firmly constructive, especially on PSU banks.

“Yes, absolutely. We have been holding PSU banks for quite some time. These are incredible franchises that have seen significant transformation in asset quality, technology and governance. They are very different from what they were 10 years ago. Even today, many of them are delivering 15–18% ROEs and growing reasonably well post consolidation, so we continue to be bullish on the pack.”

The broader debate, however, is whether investors should focus on market-cap allocation or stay stock-specific. Khemani believes liquidity matters for fund managers, but returns ultimately come from earnings visibility and valuation comfort. “Our approach has always been bottom-up. If we see a sustainable 15–20% earnings growth over the next three to five years at a reasonable price, we are happy to buy and stay invested. Short-term underperformance does not bother us if the long-term story is intact.”

He added that while macro and sectoral tailwinds are important inputs, stock selection remains the core driver. “You need to balance top-down and bottom-up, but if you have to choose one, it will always be bottom-up.”

On the IT sector, which continues to divide opinion amid concerns around artificial intelligence and currency movements, Khemani struck a contrarian note, arguing that fears of disruption may be overstated. “Every technology transition — from Y2K to cloud — has expanded the opportunity set for Indian IT services. AI is no different. Enterprises will still need IT partners for implementation, data organisation and tool selection. Writing off the IT sector would be a mistake.” He acknowledged that not all companies will benefit equally, making stock selection critical.