Despite a year of consolidation in the markets, Shah highlighted that domestic consumption and manufacturing are set to be the driving themes over the next five to ten years.
He emphasized that India’s young and aspirational demographic, coupled with sectors benefiting from the “China plus one” strategy, positions the economy for sustained growth.
Shah also discussed selective opportunities in IT, autos, FMCG, and private banking, noting that earnings recovery and a virtuous cycle of consumption and capex could underpin market momentum in the coming years. Edited Excerpts –
Kshitij Anand: I want to get your perspective on the markets. It has been in a mode of consolidation for the last 12 months. We have seen the highs and the lows, but most of the time, the market has been consolidating and has delivered close to flat or negative returns over the past year. How are you reading the markets? There have been external headwinds from the West, as well as internal headwinds in terms of earnings growth. Overall, how are you looking at the markets at this point in time?
Sachin Shah: Yes, you are right. Over the last 12 months, markets have broadly remained flat, but there have been pockets of decent returns. For example, some private sector banks have outperformed.Certain pharma companies, particularly in the CDMO space, have done well. Autos have performed brilliantly over the last two months, especially after the GST announcement by the Honourable Prime Minister post-August 15th. So, there have been selective pockets of strong performance.In fact, our own portfolio has delivered double-digit returns over the last year, which reflects significant outperformance.The market has become more of a bottoms-up, selective market rather than a top-down market, like what we saw in the first three years post-COVID.
It is also a natural consolidation after the strong rally in the first three to four years post-COVID. To my mind, this is healthy.
We believe that in the second half of this financial year (FY26) and throughout FY27, we are likely to see very strong earnings growth. This is when markets may witness a broad-based rally, so we are fairly optimistic at this point in time.
Kshitij Anand: It’s good that you touched upon this topic. We have seen moderate earnings growth over the past few quarters, and the September quarter is ending soon. October is when India Inc will start reporting. However, we also need to consider that tariffs were levied during this quarter. Do you expect September to again be a muted quarter?Sachin Shah: Well, we need to see the context. If you look at the second half of FY25 and even the first half of FY26, there has been a domestic consumption slowdown.
The Government of India has acknowledged this trend and taken several steps since February 2025, which was the budget period.
We had tax cuts, followed by RBI interest rate cuts and significant liquidity easing. On top of that, we had a fantastic monsoon and, of course, the GST.
Our sense is that all these factors together will kickstart the economy in terms of consumption. From consumption, we are entering a virtuous cycle that will also drive capex, since most industries are currently operating at nearly 75–80% utilization.
A little extra demand will certainly trigger further capex. We believe this “kicker” will come over the next 6 to 18 months.
Additionally, rural wages are now turning positive in terms of growth, which is significant. Previously, real wages were not growing due to inflation. Today, with inflation under control, real wages are rising, improving purchasing power.
Combined with further GST cuts, better access to finance, and lower interest rates, we believe we are entering a strong virtuous cycle over the next 6 to 18 months—both for corporate earnings and driven by domestic consumption and capex.
Kshitij Anand: Let us talk about some sectors as well. Domestically, as you rightly pointed out, the government has given bonanzas to India Inc and to various industries. Autos, for example, have benefited, but we are facing some headwinds from the IT space as well. Nevertheless, over a three- to five-year time horizon, which sectors do you find attractive?Sachin Shah: Let me first address the IT side. It is a very valid concern that many investors have at this point because of the challenges.
But we have to understand that, ultimately, it is the value proposition we offer to our customers—whether domestic or global—that matters. As long as that value proposition exists, clients will continue to come.
Regarding H-1B visas, the reliance on them has considerably reduced over the last five to seven years for the large IT companies, especially for new H-1B visas. Renewals have no significant impact.
For instance, TCS—the largest IT company—had fewer than 10,000 H-1B visas last year; Infosys had around 7,000–8,000, and HCL Tech about 3,000. Considering these companies employ several lakh people, the incremental impact is limited.
We also believe there is significant work in progress by Fortune 500 companies on cloud migration and making their mainframes AI-enabled.
Much of this work will continue over the next three to five years, benefiting large IT offshore companies. In fact, offshoring may increase further, potentially improving profitability. So, we are not overly worried about current developments.
Broadly, there are two other mega themes we are focusing on. The first is domestic consumption, driven by India’s young and aspirational demographic.
This combination is very powerful in driving consumerism, which I deliberately use instead of consumption, because it reflects the desire to consume now for what one will earn tomorrow.
While India’s consumption story has historically been two steps forward, one step back, the five- to seven-year trend shows consistent growth.
Within domestic consumption, sectors likely to do well include autos, private banking and retail financing, discretionary consumption in new-age businesses (such as food delivery and quick commerce), FMCG, and travel and leisure.
The second mega theme is manufacturing. At least seven or eight Indian industries have established their “right to win” globally—effectively the “China plus Europe plus one” strategy.
This includes specialty chemicals, pharmaceuticals (especially the CDMO space), auto ancillaries, electronics manufacturing, engineering (including hardcore engineering), electrical goods, and textiles.
These sectors have a long growth runway over the next five to ten years. Overall, Indian manufacturing and domestic consumption are two very strong themes, and the sectors within these should enjoy a secular run moving forward.
Kshitij Anand: Just to get your perspective on the FII story. Smart money seems to be moving toward IPOs or new fund offers while exiting equity markets. Are you seeing any specific trends?Sachin Shah: Yes, that’s a good point. DIIs continue to invest, contributing almost ₹7 lakh crore annually, while FIIs have exited around ₹3–4 lakh crore.
Although ₹3–4 lakh crore seems large—roughly $50 billion—the markets have not been significantly impacted, thanks to the ₹80–90 billion coming from DIIs.
FIIs are participating in primary issues while exiting secondary markets, likely trying to capture the pop-up gains on IPOs. Our sense is that FII money, or FPI money overall, should return strongly over the next 12–18 months.
The domestic economic slowdown they were observing is already turning around, and when growth bounces back, it will be difficult for them to resist participating in India’s growth story.
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