'India Is Late': Emkay's Manish Sonthalia Warns Against AI Hype, Finds Sweet Spot In 'Factories Of World'

The Indian equity market has successfully priced in and left behind the anxieties surrounding the Middle East conflict, and is poised to steadily climb higher, according to Manish Sonthalia, Director and Chief Investment Officer at Emkay Investment Managers. Speaking to NDTV Profit in an exclusive interview on Tuesday, June 23, Sonthalia emphasized that while "bad news gets priced in instantly, good news sinks in slowly''. Hence, investors will soon see the absence of war-led jitters in the market.

Addressing the intense investor euphoria surrounding artificial intelligence (AI) and data center themes, Sonthalia urged strict caution, advising investors to look at these hype-driven narratives "deeply under a microscope." "Fundamentals and valuations need to be addressed," he warned, pointing out that India is technically late on the AI adoption curve and fundamentally "doesn't have a play in chips or memory", which together make up 80% of the entire global AI hardware value chain.

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Emkay's Sonthalia warns against AI hype, picks 'true factories'

However, Sonthalia noted that the remaining 20% of the business-comprising data center ancillary infrastructure like networking, chilling, cooling systems, and plumbing-presents highly lucrative, tangible opportunities. Ultimately, he defines AI as a structural "play on energy tokenization." Consequently, companies involved in private capital expenditure (capex), renewable energy, and power transmission stand out as prime beneficiaries as private capex begins to aggressively pick up.

However, when it comes to global competitiveness and an absolute "right to win," Sonthalia strongly points to India's manufacturing sectors-specifically textiles and auto ancillaries. "They are the factories of the world," he stated, explaining that the domestic textile industry is currently sitting in a structural sweet spot. Lower cotton prices and expanding yarn spreads, rebounding from 75 cents to $1, are driving immediate profitability, according to the market analyst.

Notably, India is progressively erasing its historical 12% duty disadvantage against competitors like Bangladesh. With the UK Free Trade Agreement (FTA) expected to offer relief imminently and a European FTA on the horizon within the next two to three quarters, the addressable export market is set to expand massively. According to Sonthalia, sector valuations remain highly attractive and have yet to price in this multi-year growth runway.

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FIIs to turn positive on India

He notes that the next leg of structural growth in India will largely play out outside the heavyweights of the benchmark Nifty 50 and Sensex indices, which may face near-term pressure from cooling momentum in mainstream sectors like banking and information technology (IT). According to the market expert, foreign Institutional Investors (FIIs) are also increasingly turning positive on India's growth trajectory over a two-year horizon amid the stablising rupee and lower war-led risk premium.

"FII outflows have abated, and the aggressive selling has broadly been done," Sonthalia observed. Sonthalia remains deeply bullish on the broader financial financialization theme, describing capital market intermediation as a "fabulous business" defined by low capital intensity, high returns on investment (ROI), and robust free cash flows. As India projects an economic expansion from $4 trillion to $30 trillion over the next quarter-century, the runway for market penetration remains immense.

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