Manish Gunwani, Chief Investment Officer for Equity at Bandhan Asset Management Company, notes that while Indian stock market valuations are appealing, the real challenge lies in the global narrative surrounding artificial intelligence (AI), which is drawing foreign capital away from emerging markets like India. Gunwani emphasizes that the absence of significant AI companies in India, combined with a lack of commodity exporters benefiting from AI-related capital expenditure, places India at a disadvantage compared to countries like Brazil and South Africa.

To attract foreign institutional investors, Gunwani suggests that either the global AI trend must slow down or India must implement substantial structural reforms, such as changes to land and labor regulations. Despite these challenges, he is optimistic about sectors like manufacturing exporters, pharmaceuticals, chemicals, and metals, particularly steel, where he sees a favorable risk-reward scenario.

Gunwani expresses caution regarding the Indian IT sector, predicting a structural decline in growth rates over the next five years. He believes that while valuations may appear attractive, the sector faces challenges similar to those of global IT firms. Additionally, he advocates for a shift towards smallcaps, which he believes are better positioned to thrive in the evolving economic landscape, as they offer newer themes and often more attractive valuations. Other sectors he favors include real estate and power utilities, which he sees as having potential due to ongoing global energy security concerns.