Etrarkets Smart Talk: From BFSI to Healthcare: Important long-term themes for investors in the next 3-5 years after Unmesh Kulkarni

In this edition of ETMARKETS SMART Talk, Unmesh Kulkarni, director and senior advisor at Julius Baer India, shares his insights into the most important sectors that are ready to stimulate the growth suit of India in the next 3-5 years.

From the structurally strong BFSI sector to the rapidly evolving health care and consumption segments, Kulkarni emphasizes where long-term investors can concentrate on recording composite opportunities.

He also sheds light on the current market challenges, including FPI outflows, rate of uncertainties and the cautious prospects for IT companies, while pointing to triggers such as GST -cuts, private -capex -revival and domestic consumption repair that could stimulate the next stage of share growth.

Edited fragments –

Thank you for taking the time. The Sesex has remained relatively unchanged for the past 12 months. What are the main reasons for the Sesex that almost zero returns despite policy pointers?

The Indian economy has been one of the fastest growing worldwide and clocks 7.8% yo-growing in Q1 FY26. Nevertheless, the Indian stock markets have remained, with the Sesex and Nifty 50 that deliver only 2.9% and 4.3% respectively.

The primary reasons for this underperformance include the negative sentiment led by the US, a slow recovery of profit growth, lower nominal growth, a decrease in credit growth and a large selection of the primary stock markets.

The tariff overhang resulted in massive outskirts of FPIs, with net outskirts of INR 1.5 trillion in the past nine months. Tarief uncertainty, in combination with a delay in the American business sector, in particular has weighed the sentiment of IT shares.

The profit growth in Q1 FY25 was 9-10% (annualized) and is expected to pick up from the second quarter. Although the real GDP growth has arrived at 7.8% JoJ, extremely low inflation has brought nominal growth for the current year by approximately 8.5-9.0%, a low-year low (except the COVID period). Normally the profit growth of India Inc. Together with the nominal GDP growth.

The growth of the bank credit is currently halved from peak levels of approximately 20% in Cy23 to around 10%, despite RBI surcharges and sufficient liquidity.

This is mainly attributed to a slow transfer of tariff reductions to the banking system, slow recovery in private expenditures, cautious uncovered lending by banks and alternative sources of financing such as bond issues.

The Indian IPO market has been extremely strong in Cy25. In addition, the regular delivery of FPOs and the sale of private equity funds has been putting pressure on the secondary markets, which means that brakes are exercised on further growth.

Can the speed reduction Trigger FPI inflow in Indian shares include, or is the impact expected to be short-lived?

The recent reduction of the FED rate, together with extra expected cutbacks, will probably further weaken the US dollar, which has already been on a Downslide. This can stimulate a redistribution of capital from the US to emerging markets, including India.

However, this is unlikely that this will activate a structural shift in the FPI sentiment to Indian shares. The profit growth is expected to breathe new life from Q3 FY25, which should support sentiment. Nevertheless, ongoing rate uncertainties mean that a significant FPI intake is more likely once there are positive developments in Indo-US trade interviews and a meaningful recovery of the steep rates imposed by the US on Indian exports.

How important has FPI sales been in shaping market performance and do you expect this trend to continue?

Persistent FPI sale has been a great speed breaker for one of the fastest growing economies. Cy25 has been one of the worst years in terms of FPI outflows. The longer the American tariff uncertainty persists, the longer India remains vulnerable to the sale of FPI.

However, the domestic intake of investment funds was a noticeable counterbalance. Even at the height of FPI sales, retail and HNI investors have contributed record intake to domestic investment funds.

This trend gradually reduces dependence on FPIs and broadens the participation of shares in domestic investors. FPI ownership of Indian shares has fallen to 17.4%, while the domestic property of investment funds has risen to around 10%.

How many of the muted market performance can be attributed to corporate profits versus macro -economic or political factors?

Markets are influenced by both short and long -term forces. Short-term factors, such as geopolitical events and elections, create intermittent noise, while macro-economic variables in the long-term-such as inflation, interest rates and GDP-the structural trajectory determine markets.

From a perspective in the medium to long term, profit growth is of the utmost importance, because stock prices ultimately reflect the expected growth. In practice, both short-term and long-term forces play at the same time, who influence both traders and long-term investors.

We have seen GST cuts and other measures to improve sentiment. What is the next big trigger for D-Street?

The next urge to Indian markets probably comes from two fronts: revival of domestic consumption and recovery in the private Capex.

GST seasons, Timed for the festive season, will probably stimulate consumer sentiment, while investments in the private sector can lead the economy in recent years after the government after the government-led Capex. In combination with low inflation and the accommodating RBI policy, this is the stage for higher profit growth, which can revive the FPI sentiment.

Are the current valuations justified inputs, or is a correction required?

Indian shares have been largely in the reach this year, reducing valuations to historical averages. The market has experienced a time correction instead of a price correction, which means that companies can grow income, while investors can re -balance portfolios.

A risk remains: markets are prices in the profit growth of 12-14%. If this expectation is staggering, ratings can become expensive, which activates a price correction.

Which strategies can be used for long -term investors during this consolidation phase?

Investors can collect companies with strong growth prospects for reasonable valuations, but allocations as the profit cycles improve.

Contrainage sectors that are confronted with headwind in the short term but no structural challenges-such as financial, pharmaceutical and consumption, can also be considered. Exposure by index funds and ETFs can reduce the risk and at the same time guarantee market participation.

What are the large long-term themes for the next 3-5 years?

BFS: Banking and financial services reflect structural economic growth and offer compound opportunities, with healthier balances that make expansion possible.

Consumption: Rising income, ambitions and improved distribution platforms support the continuing growth in demand.

Healthcare: Hospitals, diagnostics and related services are expected to grow as a result of increasing income, insurance penetration and lifestyle -related diseases.

What are the potential consequences for Indian IT companies such as TCS, Infosys and Wipro in the midst of H-1B visa changes?

We remain cautious in the short term because of the challenges of the visibility of the growth of AI acceptance and American discretionary expenditures.

The H-1B Visa Fee Hike to USD 100K per applicant introduces uncertainties, but the profit impact is expected to be marginal (1-2%) because it only applies prospects to new applications. Companies limit risks due to offshoring, nearshoring or increased local recruitment.

H-1B holders include only 3-5% of the active workforce, because IT companies have reduced dependence on this visas in recent years. Although the valuations are increasingly supportive, the prevailing uncertainties can weigh on sentiment, so we retain a neutral image, although the sector can be a potential contrary investment.

((Indemnification: Recommendations, suggestions, views and opinions of experts are their own. These do not represent the views of economic times)