Siddhartha Khemka, Head of Research, Wealth Management at Motilal Oswal Financial Services, highlights manufacturing and financialisation as the strongest structural themes for investors over the next five years. Despite a 1% market decline in July 2026, Khemka remains optimistic about India's growth story, emphasizing the importance of quality stock selection and valuation discipline.
The recent market weakness is attributed to global and domestic factors, including geopolitical tensions in the Middle East leading to a sharp rise in crude oil prices, impacting inflation and corporate margins. Elevated US bond yields and a stronger dollar have also contributed to volatile FII flows. The June quarter earnings season has shown mixed results, with manufacturing-led sectors performing well, while IT and OMCs face pressure.
Khemka believes that large-cap valuations are reasonable, supported by low-to-mid teen earnings growth expectations for FY27. However, he cautions that the margin of safety diminishes in the broader market, where many mid- and small-cap stocks trade at high valuations despite moderating earnings expectations. Manufacturing-led sectors such as Automobiles, Capital Goods, Defence, and EMS continue to show healthy growth, while Financials remain resilient.
“The recent weakness reflects a combination of global and domestic factors rather than any change in India's structural growth story.”
Siddhartha Khemka, Head of Research, Wealth Management at Motilal Oswal Financial Services
In terms of portfolio allocation, Khemka suggests a balanced approach with 60-65% in large caps, 20-25% in mid caps, and 10-15% in small caps. He emphasizes the importance of focusing on quality businesses with sustainable growth and strong balance sheets.
Khemka is overweight on sectors like Manufacturing, Capital Goods, Defence, Healthcare, and Automobiles, citing strong earnings visibility and structural growth drivers. He remains cautious on Consumer Staples, OMCs, and certain areas within IT Services due to demand uncertainties.
Background
India's market has been experiencing volatility due to global geopolitical tensions and domestic economic factors. The country's reliance on crude oil imports makes it vulnerable to price fluctuations, impacting inflation and corporate margins. Despite these challenges, India's structural growth prospects remain strong, supported by government initiatives and a resilient domestic economy.
Looking ahead, investors should focus on quality stock selection and valuation discipline to navigate the current market environment. While elevated crude prices may cap market returns, India's structural growth story remains intact.
