Valuations are fine. The AI story is the real problem
Gunwani is clear that valuations alone are not a reason to be negative on Indian markets. Many private sector banks and other stocks have delivered earnings growth over the past three to five years but their share prices have gone nowhere — meaning they have quietly derated and now look reasonable.
The real concern is different. Globally, enormous amounts of capital are chasing AI-linked stocks — from American tech giants to South Korea’s SK Hynix, Taiwan’s TSMC, Samsung, and even mid-sized Chinese companies offering AI services that are now worth thirty to forty billion dollars. India simply does not have that story. It lacks large AI companies and it also lacks the commodity exporters that are benefiting indirectly from AI-driven capital expenditure. Brazil and South Africa are doing well because AI and defence spending is lifting commodity demand. India is caught in between, with neither angle working in its favour right now.
What could bring foreign investors back
For foreign institutional investor interest to return meaningfully, Gunwani sees two possible triggers. Either the global AI theme slows down, making India relatively more attractive, or India delivers significant structural reforms — think strategic divestment or changes to land and labour regulations — that generate fresh excitement. Without one of these, FII flows are likely to remain tepid.
Where Bandhan AMC is putting money to work
Despite the global headwinds, Gunwani says the fund house has been actively deploying cash. His preferred structural theme is manufacturing exporters. If AI gradually erodes India’s services exports — which he considers a reasonable likelihood — the policy and currency response will eventually favour manufacturers. Sectors like pharmaceuticals, capital goods, and chemicals make up the core of India’s manufacturing export base, and he finds the medium to long-term risk-reward there compelling. He also likes metals, particularly steel, where a strengthening Chinese yuan relative to the dollar could keep improving steel spreads.
IT sector faces a structural slowdown
On Indian IT, Gunwani is cautious for the long term. While valuations look attractive on a cash flow basis, he sees a structural decline in the sector’s growth rate playing out over a five-year horizon. This is not just an India problem — global IT services firms like Accenture and Capgemini are facing similar pressures. IT stocks may offer tactical opportunities, particularly if the rupee comes under pressure from geopolitical tensions, but he does not expect big absolute returns over a three to five year period.
Smallcaps over largecaps for the next decade?
One of Gunwani’s more distinctive calls is his preference for smallcaps over largecaps on a three to five year view. His argument is that the largecap index was built for an era — roughly 1990 to 2020 — defined by consumption growth, services exports, a strong dollar, and a stable unipolar world order. That world no longer exists. Demographics are peaking, geopolitics is multipolar, and new themes are emerging that are better represented in the smallcap space. Smallcaps offer more variety, newer themes, and often cheaper valuations within the same sectors.
Other pockets he likes
Real estate is another sector where Gunwani sees reasonable risk-reward after a period of underperformance, particularly given that low real interest rates globally will continue pushing flows toward risk assets. On banking, he has moved away from PSU banks — the valuation gap versus private banks has narrowed and their higher leverage and retail or SME exposure makes them more vulnerable in a challenging macro environment. He prefers lenders focused on corporate credit or housing finance instead.
Power remains a long-term conviction theme, with utilities and power equipment companies that can serve global markets standing out, especially as countries across the world prioritise energy security in the wake of ongoing geopolitical conflicts.