'Capital market-related stocks already discount couple of years of growth'

The margin of safety in capital market stocks for near-term investors is limited

As the markets prepare for India Inc. to unveil its earnings for the June quarter, SACHIN SHAH, executive director and fund manager at Emkay Investment Managers, tells Nikita Vashisht in an email interview that the markets are likely to stay range-bound until early results and management commentaries provide clearer guidance on business outlook. Clarity on both fronts—tariffs and earnings, he said, could act as catalysts for the next leg of the market move. Edited excerpts:

 

What is your reading of the current market scenario? How long will this consolidation phase last?

Market consolidation could be a function of some profit booking after a sharp rally. That said, the broader macroeconomic environment remains highly supportive of a continued rebound in India’s economic growth.

 

Key positives include easing interest rates, improved systemic liquidity, robust monsoon season, moderating crude oil prices, and strengthening geopolitical tailwinds favouring India.

 

To my mind, the only uncertainty in the immediate future appears to be the one around the final tariff structure to be announced by the US—not just for India, but globally. India’s relative positioning within this framework could influence foreign investor (FII) sentiment and trade dynamics.

 

Additionally, with the corporate earnings season kicking off, markets are likely to stay range-bound until early results and management commentaries provide clearer guidance on business outlook. Clarity on both fronts—tariffs and earnings, could act as catalysts for the next leg of the market move.  Track Stock Market LIVE Updates

 

Which sectors look oversold/overbought and are ripe for profit booking/rebound as things stand?

From a two–five year perspective, we are optimistic about the outlook for private banking, auto & auto-ancillaries, pharma (CDMO / CRAMs) and discretionary consumption. Even the information technology (IT) sector, while it faces short-term growth headwinds, offers reasonable valuations and a good probability of a rebound.

 

Do you think the rally in the capital market–related stocks has run its course?

While valuations in capital market-related businesses are no longer inexpensive, the structural shift underway in India's savings behaviour is both real and transformative. We are witnessing an unprecedented reallocation of household savings from traditional fixed income products to equities—a trend that has fundamentally altered the landscape for capital market players. This shift is being appropriately reflected in the valuations of related businesses.

 

However, it's important to note that in many cases, current prices already discount the next couple of years of growth. As a result, the margin of safety for near-term investors is limited. That said, for long-term investors with a 7–10 year horizon, this sector still holds significant potential.

 

The financialisation of savings in India is likely to become even more broad-based in the years ahead, creating a favourable backdrop for capital market businesses to grow sustainably and compound return. 

 

Do you think Trump's tariff policies will keep upside down in check in pharma, auto, and metal sectors?

The real impact will depend on two factors: the relative tariff treatment of India versus other countries, and the value proposition Indian manufacturers offer globally. While there is some nervousness around potential disruptions, we're not overly concerned at this stage.

 

Over the years, Indian manufacturers have demonstrated strong competitiveness, and in many cases, a clear "right to win" on the global stage. Sectors such as Specialty Chemicals, Pharmaceuticals (CDMO, CRAMs, generic formulations), Auto Components, Engineering (including power equipment), Textiles, and more recently Electronics Manufacturing, have built domain expertise, achieved supply-side scale, and shown consistent respect for global IP norms.

 

Even if tariffs are introduced or revised, companies that offer high-quality, cost-efficient, and scalable solutions are likely to retain or even grow their share in global markets. So while short-term volatility cannot be ruled out, the medium- to long-term outlook remains positive for these sectors.

 

Monthly SIP inflow touched a record high in June 2025. What has been your strategy in recent months?

Our strategy has remained consistent: focus on high-quality management teams leading structurally profitable businesses, and invest in them at reasonable valuations. However, the most important principle, especially in a market like this, is to stay invested.