Financials, Small-Cap IT, Capex To Lead Next Leg Of Growth, Says Nilesh Shah
The consumption theme is also expected to benefit from a combination of lower inflation and interest rates, welfare measures and the upcoming impact of the Pay Commission.
The Indian markets are increasingly focused on long-term growth despite having remained largely flat for the past nine months, according to Nilesh Shah, founder of Envision Capital.
He added that financials, small IT companies with focus on AI and capex would be leading the next leg of growth.
"The market has been consolidating since September–October 2024, and while some sectors have performed well, the headline indices are still hovering near levels seen nine months ago," Shah told NDTV Profit on Thursday.
He views this time-wise correction as healthy and necessary. Shah expects corporate earnings to begin showing double-digit growth in June and September quarters, supported by a low base from financial year 2025's modest GDP growth.
A 10–12% earnings expansion, he believes, will be sufficient to support returns and protect against downside risk. Shah also foresees a catch-up trade over the next one or two quarters, as markets adjust for the prolonged flat performance.
In terms of sector outlook, Shah points to large banks as ripe for a recovery, having underperformed recently. He expects foreign investors to allocate meaningfully to financials.
The consumption theme is also expected to benefit from a combination of lower inflation, low interest rates, welfare measures and the upcoming impact of the Pay Commission. These factors, along with softening raw-material prices, can lead to both volume and margin growth in consumption-focused companies.
He remains positive on capital expenditure, especially in segments like aerospace and electronics manufacturing services, which are likely to see renewed momentum in financial year 2026 after a subdued fiscal 2025. These trends, Shah suggests, will underpin both economic growth and earnings expansion.
On the defence sector, Shah believes the sharp rally witnessed since February–March likely peaked in the short term, with many stocks now trading at 50–100x trailing earnings.
However, he maintains that defence is a long-term structural story driven by indigenisation and increased national security spending. He expects defence outlays to outpace railway investments over the coming years and sees the sector now falling under a buy-on-dips category.
Finally, Shah sees challenges for large IT firms amid slower global growth, while smaller, niche-focused IT companies, particularly in AI, are better positioned to outperform. He also believes that continued strong SIP inflows, steady promoter behaviour and supportive RBI policies will serve as tailwinds for financial services companies.
