Vikas Khemani recommends banking and pharma stocks

Market expert Vikas Khemani recently discussed the current stock market conditions. He noted that market corrections typically happen every two or three years during bull markets. A significant correction occurred in 2022, caused by the Ukraine war, when the Nifty fell from 18,500 to 15,500, a drop of nearly 20%. Khemani believes that most of the stock market damage has already happened, particularly in mid and small-cap stocks. He emphasized that while some speculative stocks might not recover, strong companies and sectors would bounce back. He pointed out that the market has overlooked important policy changes and positive economic news, but this recognition is on the horizon. Over the next month, there will be more clarity on tariffs, corporate earnings, and regulations, which should make valuations more appealing. Khemani anticipates a significant market rally once the US cuts interest rates, increasing foreign investment in emerging markets. According to Khemani, the IT sector faces short-term challenges due to changes driven by AI and a slowdown in the US economy. However, Indian IT companies have historically succeeded during technological shifts. Despite AI reducing costs, service volumes are expected to increase, supporting long-term growth. The defense sector looks strong due to increased government spending. Khemani advises investors to carefully assess individual company valuations while considering public sector units (PSUs). He highlighted that PSU banks offer great investment opportunities because of reasonable valuations. Although the market has bounced back about 1,000 points from its recent lows, skepticism remains. Historically, large-cap stocks recover first, followed by mid and small-caps. Khemani predicts that new market highs could be reached in the next financial year and that double-digit returns are possible by year-end. He reflected on a similar market situation in June 2022 when he urged investors to build portfolios, leading to substantial gains. Khemani is optimistic about achieving superior returns, despite short-term market fluctuations. He sees potential in banking and financial services, especially large banks and select non-banking financial companies (NBFCs), along with promising prospects in pharma and power sectors due to rising energy demand. He encourages investors to focus on long-term strategies rather than fear market corrections.