Manish Sonthalia, from Emkay Investment Managers, highlighted a trend of borrowing in dollars to invest in emerging markets, noting significant foreign institutional investor (FII) activity in late August and projecting similar interest for September. Observations of market data suggest increased participation and a broader market, reinforcing confidence in sustained gains.
Following a US rate cut, there is notable involvement in the dollar carry trade. China’s stimulus measures and a drop in the dollar index from 105-106 to closer to 100 have contributed to this trend. Sonthalia indicated that although market volatility is expected, declines are likely to be met with buying opportunities. He emphasized that the market is not uniformly overvalued, but rather, strength and weakness exist within specific stocks and sectors, indicating an upward trajectory over time.
When discussing valuation comfort, particularly in private banks, Sonthalia noted that while larger institutions like Axis and ICICI Bank continue to perform well, there are opportunities in underperforming banks such as HDFC and Kotak. He emphasized the importance of looking ahead to FY26 for the private sector banks’ valuation, considering the rise in funding costs and benign credit cycle. Slippages in the retail credit cycle may lead to earnings growth of 10%-15%. Consequently, private banks offer appealing valuations based on price-to-earnings multiples, making them suitable for significant capital deployment.
Regarding the consumption sector, Sonthalia linked its performance to factors such as monsoon outcomes. He expressed selectivity in the FMCG sector due to limited valuation comfort relative to growth. However, he noted that urban consumer discretionary names are performing better than rural ones, suggesting that a good monsoon could benefit the latter.
On the power sector, which has seen stock prices rise by 40%-60% this year, Sonthalia was optimistic. He pointed to continued interest in both public and private sector names within capital goods, particularly in defence, railways, and power. While some private sector names are trading at elevated valuations, public sector units, especially those related to power transmission and generation, offer reasonable growth prospects and valuation comfort. This sector is crucial for India’s energy security and achieving a 6%-6.5% real GDP growth, indicating significant potential for investment throughout the value chain.