Daily Voice: Carnelian’s Manoj Bahety sees IT, auto, BFSI as attractive contra plays on valuation comfort

Manoj Bahety is the Founder and Fund Manager at Carnelian Asset Management & Advisors

• IT, auto CV, BFSI sectors offer attractive contra-bet opportunities
• Earnings momentum continues to be driven by manufacturing, auto and auto ancillaries, BFSI, discretionary consumption
• Expect uptick in private capex backed by strong manufacturing demand
• Growth-oriented measures to continue to get boost both from monetary and fiscal side in Union Budget

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IT, auto CV (commercial vehicle), and BFSI sectors offer attractive contra-bet opportunities where valuations remain comfortable and growth visibility is strong, said Manoj Bahety, Founder and Fund Manager at Carnelian Asset Management & Advisors, in an interview with Moneycontrol.

He believes that in the Union Budget 2026, growth-oriented measures will continue to receive support from both the monetary and fiscal sides. Government spending is expected to remain robust, particularly on infrastructure, he said.

According to him, sustained reforms, improving ease of doing business, and a clear focus on job creation will further boost confidence in the economy and strengthen the growth outlook.

Do you think valuations are attractive in the consumer discretionary and IT sectors?

Yes—select good quality companies are available at reasonable valuations. IT sector looks especially compelling on a 3–5 year view, as the sector is back to its historical valuation range. IT companies continue to maintain strong margins, and large-cap names are now trading at reasonable valuations. We remain positive on the sector, as much of the negative news appears to have been priced in. The key missing element has been earnings growth, despite robust order books.

We bucket auto and auto ancillaries also as part of consumer discretionary where we see good tailwinds and expect earning upgrades owing to GST and income tax rate rate cut coupled with lower interest rates.

Could the Q3 earnings season mark the beginning of a more durable earnings upgrade cycle?

In our view, the earnings downcycle has bottomed out, and expect recovery in discretionary consumption demand backed by monetary and fiscal stimulus like GST and income tax rate cuts, low interest rate and liquidity surplus.

Overall, earnings momentum continues to be driven by manufacturing, auto and auto ancillaries, BFSI and discretionary consumption. The impact of fiscal and monetary stimulus generally comes with a lag and hence we believe H2FY26 is likely to deliver a positive surprise in terms of earnings performance.

Which sectors are likely to deliver upside surprises during the Q3 earnings season?

We continue to prefer sectors aligned with India’s domestic growth story. Consumer and automobile stocks are likely to benefit from potential tax cuts, improving consumer sentiment, and a gradual recovery in rural demand.

Banks and NBFCs remain well positioned, supported by healthy credit growth, adequate liquidity and lower interest rates along with healthy asset quality.

Healthcare and CDMO companies continue to offer strong structural growth opportunities as global players diversify supply chains and increase outsourcing.

Additionally, power and capital goods sectors should see sustained momentum, backed by higher investments in infrastructure and manufacturing. We also expect uptick in private capex backed by strong manufacturing demand.

Will the Q3 earnings season provide a strong foundation for equity markets going forward?

We believe that India’s macro is well placed to drive earning growth. We expect sequential improvement in corporate earnings going forward owing to fiscal and monitory stimulus mentioned above. The ability of companies to deliver consistent earnings and protect margins will ultimately determine market direction.

On the domestic front, progress on India’s manufacturing push, infrastructure spending, and private sector capex will drive corporate earnings, as these will shape medium-term growth visibility. Policy stability and regulatory continuity will also play an important role in sustaining investor confidence.

Do you believe equity supply will continue to cap the market’s upside?

I think India offers decent depth to absorb incremental equity supply provided it is backed by good business, decent management and at right valuations.

However, one should be very cautious of unsustainable business models and also on the valuation being demanded by fresh IPOs. We found margin of safety not favourable in recent IPOs, hence stayed away from most of the recent IPOs.

Do you expect any game-changing announcements in the Union Budget 2026?

We believe that growth-oriented measures will continue to get boost both from monetary and fiscal side. Many path breaking reforms including PLI and non-tariff barriers aimed at boosting growth have already been introduced.

We remain positive, as strong GDP performance, robust industrial output reflected in recent IIP data. Sustained reforms, improving ease of doing business, and the clear focus on job creation will further lift confidence in the economy and the growth outlook.

Government spending is expected to continue, particularly on infrastructure.

Do you think 2026 will be a robust year for the IPO market?

The sharp rise in IPO activity reflects growing confidence in India’s capital markets and the availability of risk capital. At the same time, history shows that periods of heavy IPO issuance demand greater discipline from investors, as not all listings go on to deliver long-term value.

In 2026, IPO activity is likely to remain healthy, but investor focus should remain firmly on fundamentals and valuations. The quality of the business model, visibility and sustainability of earnings, along with margin of safety should be evaluated diligently before investing.

What are your contrarian bets for the new year?

IT, auto CV and BFSI sector offers good contra bet where valuation is still comfortable and growth visibility is strong. IT companies continue to maintain strong margins, along with large deal wins and large-cap names are now trading at reasonable valuations.

BFSI sector will continue to report uptick in credit growth backed by lower interest rates, adequate liquidity and revival in consumer demand and private sector capex. BFSI and select NBFC stocks are still available at reasonable valuations considering improving ROE metrics.