AI Yet to Take Off in India
“If you talk about AI, we have not seen anything in India. There is no AI play in India,” Raheja said. He pointed out that while global markets are witnessing a melt-up in AI-related stocks, Indian companies are still catching up. “We are sort of lagging behind on the curve. Companies who never looked at it are being forced to look at it, even technology services companies are being forced to put investments to work because they were so used to working in a high ROCE, low capex model — and now AI requires capex,” he added.
Raheja expects data centres, assemblers, and the semiconductor supply chain to be among the early beneficiaries of this shift. However, he cautioned that the semiconductor space itself will take time to mature, given the long gestation period required to stabilize operations.
Consumption to Remain the Big Story
According to Raheja, consumption will remain the dominant theme driving the next leg of the market rally. “I do believe that consumption is yet going to be the big story and continue to drive for the next year and so on and so forth,” he said.
He added that the government’s proactive stance, reflected in its push behind GST reforms, is a strong signal of policy-backed growth. “Wherever the government puts its might behind it — whether it was defence earlier or infrastructure spending — they tend to be growth drivers for GDP,” he said.
With upcoming elections in large states like Uttar Pradesh and Bihar, Raheja expects increased public spending and handouts to further boost consumer demand.
Earnings Revival and Financials in Focus
Raheja believes FY26 could mark the start of an earnings revival. “Next year is also going to be a year of revival of earnings hopefully. If we go by consensus numbers, most houses are talking of a 15-16% earnings growth,” he noted. A key contributor to this growth, he said, will be the financial sector, which accounts for nearly one-third of India’s market capitalization. “Financials are coming off a low, where credit growth has fallen to 8-9% and margins are compressing. If credit growth goes back to 12-13% and margins start coming back, we could see 14-15% earnings growth from financials,” Raheja explained.
He also highlighted pharmaceuticals as a potential comeback story: “Pharmaceuticals have had this long overhang, and now the fact that generics are being exempt should see pharmaceuticals starting to show signs of coming back.”
IT Sector: Short-Term Play, Long-Term Challenges
Raheja remains cautious about large-cap IT companies despite the global AI buzz. “Everybody talks about AI, but nobody has really found a great end use case of AI, and that will be the next stage of evolution,” he said.
He believes productivity gains from AI could get passed on to clients in the form of price cuts, impacting profitability. “It could see growth, but it could be slower growth going ahead,” he said, adding that IT valuations have already cooled off — from 27–28x earlier to around 20x now.
However, he sees potential in midcap IT companies, which are more nimble and less burdened by excess bench strength. “This is a great world for midcap IT,” Raheja said, suggesting that smaller firms could benefit more quickly from AI-related transitions.
Private Banks, PSUs Offer Value
When asked about the best way to play the banking theme, Raheja said private banks remain the compounders. “Even within the private banks, I would stick to the top-tier ones purely because when we look at banking, we look at underwriting culture,” he said.
He also sees opportunity in select PSU banks, given the government’s renewed focus on unlocking value from public sector enterprises. “I do think that the PSU banks are being asked to up their game because there is going to be some amount of value unlocking that the government would expect from its PSU pack going ahead,” he said, adding that valuations remain “very, very attractive.”
Macro Outlook: Supportive Backdrop for Growth
Despite global headwinds like trade uncertainties, geopolitical tensions, and weather risks, Raheja remains optimistic. “We will have a deal sooner than later because there is a lot of reconciliatory tone that we are seeing,” he said.
He also pointed out that nominal GDP growth could accelerate next year. “This year’s earnings growth is hampered by low inflation. Next year, if RBI’s expectations of 4–4.5% inflation hold, nominal GDP could be around 10.5–11%. So, it’s not difficult to see why earnings growth should not happen,” he concluded.