Have the markets bottomed out? That’s the question on everyone’s mind. Well, Manish Sonthalia, Director and CIO of Emkay Investment Managers says he is not bearish on the markets at all. The current levels of Nifty around 22,000 is a good level to buy according to him and he sees the Nifty rallying to 25,000 over next 9-12 months and expects 26,000 -27,500 by the end of 2027.
In an exclusive interview with FinancialExpress.com, he lists out the top sectors to watch and alternate investment opportunities for India. According to him, reciprocal tariffs are not a worry and FII selling is no big deal.
Here are excerpts from the interview with Manish Sonthalia-
What is your reading of the state of the stock market at the moment?
The euphoria is gone now and we are back to where the fundamental values of the market should be. I think at 22,000 (Nifty levels), we have a very steady level. Anything below these levels, we would be traversing on the extremes on the downside. If 26,000 was an extreme on the upside, below 22,000 would be an extreme on the downside.
The market should gradually move up. We are not going to see a v-shaped recovery. It’s going to be gradual. And after 22,000, I think by December or March 2026, we should be closer to 25,000.
I think Indian markets have held long term median valuations of around 12-18 times. On that basis, basically, we are 18x. So I’m not bearish at these levels in the market.
If Nifty is trading at, let’s say, 20x PE and earnings growth is 10%, it is trading at 2 PEG. Buy any stock in this market, mid cap, small cap, large cap within that band of 2 PEG. Don’t bet on excessive. Don’t buy stocks which are 3 PEG and above.
The near, mid and long term targets for markets that you have in mind?
Long-term, India’s target is 15% compounded. So India’s market will have compounded broadly at 13-14% and 1% dividend. So at 22,000, if nothing changes, then corporate India’s EPS growth is not going to be 15%, it’s going to be around 10 to 12%. You should expect 12-13% sort of a move in the medium-term. So on 25,000, if you were to calculate 12%, you should probably be at around 26,000, -27,500 by the end of 2027.
Why do you think reciprocal tariff is not a big worry for the markets?
India’s growth will take care of valuations as well as Trump’s rhetoric on reciprocal tariffs. India’s basket rate tariff difference is around 5%. That is to say, the US on a basket-wide basis charges us (India) 3%. We charge them around 8%. We are charging them 5% more on a $150 million trade. This will probably lead to $7.5 billion dollars worth of outflow, the disadvantage which India would have – big deal! . The current fall in the markets is powered more by the narrative on reciprocal tariff. India is a domestic-centric economy.
We produce and consume ourselves. Our share of global trade is hardly anything. As far as the global selling by FIIs is concerned, India is just 2% of the FII flows and 10% of the global emerging market. Bulk of the FII flows go into the US. So there’s no big deal about FIIs selling and all that. I think what is moving at the margin and which is very positive for the market is this is the stoppage of the selling by private equity firms and the promoters who were raising tonnes of capital through QIPs, IPO, preferential shares.
Which are the stocks or sectors that you find most attractive in the market right now?
India’s currency was overvalued and with the coming of the new regime in the United States, the entire global capital is moving back to the US and the dollar has become extremely strong.
You could say that all emerging market currencies have become weak. India’s currency is also weak. It’s now closer to 88/$ levels. Broadly you should see another 3-4% depreciation. We should see the rupee closer to 90/$. In that backdrop, export oriented sectors are likely to do well. And this whole euphoria narrative around the adverse impact of reciprocal tariff is again, overplayed. Electrical components, pharmaceuticals, information technology, gems and jewellery and garments – these are some of the areas which are likely to benefit. Then you would have the financial services sector, which comprises banks, insurance, NBFCs, which are trading at very cheap valuations. These are two major sectors.
Third sector which has got a leg up from the Budget – I think the discretionary side of things will do well. I’m not saying FMCG because GST is not cut. It is income tax which has got cut. Six crore people have income less than 12 lakhs. So these are the six crore people who are going to benefit. These are the guys who don’t have to run after roti and Kapada. Now they are the guys who would spend more on two wheelers, maybe QSRs, restaurants, fast fashion, medical, leisure, entertainment, all these. Discretionary, likely to do much better, not so much on the FMCGs.
Consumption, I think, will do well. The entire thematic will shift away from investment-related themes more towards consumption-related themes.
Conversely, which are the sectors that you think are overvalued even after the sell off?
I think the biggest worry that one investor should have is on growth and valuation. Some of the sectors which I’ve seen over ownership in the past few years are still remaining overvalued. Electric wires and cables, even after the correction, are still trading at 45-50x. Then capital goods, by and large, are expensive..
Railway stocks still are expensive. Defence stocks still are expensive. Infrastructure stocks are still expensive.
Given the state of how our markets are now, do you consider Indians investing abroad?
By and large, under the LRMS, you can invest or individuals can invest up to $2.5 lakh, if you can understand those markets, it is jolly well proper to diversify. Some of the global markets like China are very cheap and they have given some fabulous returns. While India was correcting, Chinese markets were up 25%. So I think diversification in asset classes, diversification in geography does help in terms of mitigating risk and at the same time optimizing returns.
I would be in favour. But I only suggest that you should understand what you are doing. By and large, if you were to invest directly, then broadly you are not understanding what you are. If you don’t understand, it’s better to go through mutual fund, AIFs etc,
What is your reading of the health of the economy now, and how do you see it playing in years to come?
The health of Indian economy is very good. As I said, we are a domestic centric economy. We are not so dependent on exports. I will just give you a comparison with China. China is by and large an export-denominated economy. If export falters, the economy is in shatters because they have created such massive capacity that those capacities will go under utilised. Similarly, some of the other countries like Japan are export denominated economy. In contrast we are a domestic centric economy. After the pandemic, what we have seen because of the IBC, GST, the RERA and the like, the health of corporate India has really become very good. Corporate balance sheets are absolutely de-levered. The government’s balance sheet is in fine fettle. We have stuck to our fiscal responsibility and budget management act. From 9% fiscal deficit in 2020, when the pandemic broke out to 4.5% this year and targeting 4% next year – I think we could not be in a better state of affairs as fast as the economy is concerned. The only thing is after 8.2% real GDP growth in FY24, this year will be something like 6.3 – 6.6%.
I think India will be able to mitigate the challenge, due to AI and DeepSeek on India’s IT sector. I think India, over a period of time, will be able to remodel the business dynamics which are going to prevail in IT. I don’t see too much of a problem.
FIIs and DIIs have been on opposite ends in terms of market participation. At least in this innings, did FIIs emerge as more rational players, they have been selling for a long time now?
We only look at Indian markets. Global allocators of capital, on the other hand, will have many other markets to look at. And wherever they find relatively cheap valuations, they will go. So in that backdrop, when you’re looking at major markets all over the world, they are saying that India is relatively more expensive than the rest of it. So they have reasons for global capital to basically move from relatively expensive markets to relatively cheap markets. There’s no rocket science behind it. And, I think that’s exactly what they are doing, but they have been selling all emerging markets.
So when we fret that FIIs have been sellers for the last 1.5 years and relentlessly selling two, three, four lakh crore, whatever the number may be, they have been selling many markets. They have been selling Thailand. They have been selling South Korea. They have been selling China for a very long time. Thailand, Malaysia, Philippines, they have been selling all emerging markets because by and large, if you have four and a half percent risk free rate on the US treasury, 10-year yield is trading at 4.5% and that too in dollar terms, then entire global capital will have a propensity to move away from risky assets.
I don’t read too much into their selling. FIIs that we speak to say the long-term structural story of India is intact. They have been saying this for 2 decades. But at all points of time they find India expensive. We can’t change their point of view.
Any thoughts on gold?
Gold will appreciate by 9-10% every year. They have broadly done that. The last year has been massive. Given the currency problem or the balance sheet problem of the US, whereby you have $1 of assets for $12 of liability. With that sort of a mismatch, then basically, the US dollar should depreciate. If the US dollar has to depreciate, then anything pegged to the US dollar will basically go out. And, now that the whole world has printed so much of currency, there has to be some semblance of sanity moving towards the gold-backed, asset backed monetary system. And in that backdrop, I think gold fits the bill.
Any other investment ideas that you think investors should evaluate in these times?
I think that a retail investor broadly has four asset classes. Equities, gold, real estate, and fixed income. So I think, income funds because I think rate cut cycle, if we don’t have a flare up in oil prices and we don’t have significant depreciation of the Indian rupee, inflation in that situation should be broadly benign. In that situation you should see a one full percentage cut in this financial year. So if you have a lowering of interest rates and now there is a preference of growth over inflation, I think income funds will do well.
Finally, what’s your call for 2025, in terms of the performance of the market? Which stocks do you believe are most likely to surprise?
It’s pointless to be bearish at these levels of the market. But markets are not going to stage a V-shaped recovery. It’s going to be a gradual u-shaped recovery and broadly whatever is going to be the earning growth of Nifty, that is what is going to be replicated at market level. I think that FY26 will see 10 to 12% earnings growth. From 22,000, a 12% gives you around 25,000. So in the next 9-12 months, the market will give a 12% return. And, after that, it should be historical rates of around 15%. Don’t expect last year’s return to be extrapolated this year. It will not happen. So keep expectations low.
So this 13%,14%, 15% – market will give you returns. You do some stock picking of your own, 17-18% returns should be fine.