“Yes, absolutely. We have been holding PSU banks for quite some time. These are incredible franchises that have undergone significant transformation in terms of asset quality, technology and governance. They are very different from a decade ago. Even today, many of them are delivering 15-18% return on equity and growing quite well post-consolidation, so we remain bullish on the pack.”However, the broader debate is whether investors should focus on market capitalization allocation or remain stock-specific. Khemani believes that liquidity is important for fund managers, but returns ultimately come from visibility of earnings and comfort of valuation. “Our approach has always been bottom-up. If we see sustainable earnings growth of 15 to 20% at a reasonable price over the next three to five years, 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 sector tailwinds are important factors, stock selection remains the key driver. “You have to find a balance between 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 over artificial intelligence and currency movements, Khemani struck a contrary note, arguing that fears of disruption may be overblown. “Every technology transition – from Y2K to cloud – has expanded the opportunities for Indian IT services. AI is no different. Enterprises will still need IT partners for implementation, data organization and tool selection. Writing off the IT sector would be a mistake.” He acknowledged that not all companies will benefit equally, making stock selection crucial.
“Not every IT company will do well, but the sector as a whole has long legs. The order book and number of deals remain strong.”
According to Khemani, the production is too broad to be considered as one theme and should be broken down into specific options.
“Manufacturing includes everything from chemicals and auto parts to defense and capital goods. We are bullish on select specialty chemicals, auto parts, CDMO, capital goods and energy tools. These are areas where we see continued growth over the medium to long term.”
In terms of capital flows, while domestic institutional inflows continue to strongly support the market, foreign investor participation has remained volatile. Khemani expects this to improve as global conditions evolve. “DII flows have been very robust, driven by steady SIP inflows. On the FII side, 2026 should be better as US yields start to fall and emerging markets pick up flows again. The China-India rebalancing is largely behind us.”
He pointed out that the resilience shown by Indian markets despite continued financial outflows is a positive signal. “If FII flows turn positive, the impact could be significant. Markets are not yet pricing in that benefit, and it could even lead to a revaluation.”
The overarching conclusion of the interaction is clear: While macro variables and global flows influence sentiment, long-term wealth creation in Indian equities will continue to depend on disciplined stock selection, patience and conviction in business fundamentals.
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