Manishi Raychaudhuri, Chief Executive Officer of Emmer Capital Partners, says two factors make him cautious about the Indian market in the near term: slowing earnings growth and high valuations.

“Earnings estimates have been declining since late September, dropping by 6-7%, and this has been broad-based across sectors, be it domestic or international revenue dependent,” he said.

Despite a 10-12% market correction from September highs, valuations remain elevated.

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“Forward price-to-earnings multiples for large indices are still around 22-22.5, compared to a 10-year average of 19-19.5. If you look at India’s price-to-earnings, or price-to-book premium compared to Asia ex-Japan, it is still about 60% and that compares to the 40% average of over the last 10 to 15 years,” he added.

He warned that equity markets must brace for significant volatility in the first quarter of the year due to global and domestic uncertainties.

“Markets will have to navigate some treacherous outcomes that might result as a consequence of this new administration coming in (in the US)” he said, adding that the resulting uncertainty is likely to persist for at least the next few months.

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In India, Raychaudhuri prefers private sector banks, manufacturing, and infrastructure as key long-term themes.

“Private sector banks have clean balance sheets and are gaining market share,” he noted.

Over the next five to ten years, capex-driven growth will be one of India’s biggest themes. There are also opportunities in IT services, driven by resilience in the US economy and demand from US financial institutions.

On emerging sectors such as quick commerce and renewable energy, Raychaudhuri urged patience.

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While valuations appear daunting in the near term, he drew parallels with China, where similar companies achieved substantial growth over time.