After years in which financials, consumption and information technology dominated Indian equity returns, investors may need to rethink where the next decade of wealth creation will emerge. According to Aditya Mulki, Chief Executive Officer of Navi Asset Management Company, the market is entering a new phase where industrialisation, electrification, AI infrastructure and discretionary consumption could replace the sectors that led previous bull runs.
In an exclusive with BW Businessworld, Mulki argues that India’s AI opportunity lies not in building the next OpenAI but in constructing the physical infrastructure that enables artificial intelligence adoption. He remains constructive on Indian equities in the second half of 2026, citing improving earnings, reasonable valuations and the potential return of foreign capital.
Edited Excerpts:
The last major bull market was led by financials, consumption and, at times, IT. What sectors do you believe will lead the next leg of India’s equity market over the next five years?
The next cycle is likely to be led by a different set of sectors. As India evolves, beneficiaries are expected to include domestic manufacturing (defence, capital goods, railways, electronics and semiconductors), energy transition infrastructure (power, transmission and renewables), AI-linked digital infrastructure (data centres, cloud and telecom), selective financial services such as mid-tier lenders and insurance, and a revival in rural demand.
Importantly, the next decade is likely to be a consumer discretionary story rather than a consumer staples story, as rising incomes increase spending on aspirational products, travel, retail and lifestyle categories.
In contrast, traditional FMCG companies face structurally slower volume growth, large private banks have largely completed their valuation re-rating, and pure-play IT services face growing disruption from artificial intelligence. The leadership of the next cycle is therefore likely to be defined by execution, industrialisation, electrification and rising discretionary consumption rather than the themes that dominated the previous bull market.
Defence stocks have struggled this year despite heightened geopolitical tensions. Does the market overestimate the link between global conflicts and earnings for Indian defence companies?
One of the biggest misconceptions in the defence sector is that global conflicts automatically translate into higher earnings for Indian defence companies. In reality, their growth is driven far more by domestic government orders, procurement decisions and the push for indigenisation than by geopolitical headlines. While defence stocks often react sharply to global events, actual earnings depend on how quickly orders are awarded and executed, which can take several years.
Since defence contracts are long-cycle in nature and orders are often concentrated in the final quarter of the fiscal year, earnings can be lumpy and quarterly performance can appear volatile. For long-term investors, such periods of weakness may present opportunities rather than signs of fundamental deterioration.
Artificial intelligence is emerging as a major investment theme globally. In India, where do you see the biggest opportunities within the AI ecosystem: data centres, power, telecom infrastructure, cloud services or software?
India's AI opportunity looks very different from that of the United States. In the US, most of the value is being captured at the chip layer and application layer by companies building foundation models and advanced AI software. In India, the bigger investment opportunity is likely to emerge from the physical infrastructure required to support AI adoption.
The highest-conviction opportunity is power infrastructure. Every AI data centre requires reliable power, transformers, switchgear, cables, cooling systems and grid connectivity. As AI workloads grow, power availability is becoming the key bottleneck globally, making power infrastructure one of the most direct beneficiaries of the AI investment cycle.
Data centre infrastructure is the second major opportunity. India generates nearly 20 per cent of the world's data but accounts for only a small share of global data centre capacity. Closing this gap will require substantial investment in data centres, creating a multi-year growth runway for developers and supporting industries. Telecom and connectivity infrastructure are also likely beneficiaries as AI applications require high-speed networks and low-latency connectivity, although investors should remain mindful of valuations in this space.
The software and IT services layer presents a more mixed picture. While AI will create new revenue opportunities, it also threatens the traditional headcount-driven business model that has powered Indian IT services for decades. As a result, the sector is likely to see clear winners and losers rather than broad-based gains.
The key insight is that India's AI story is less about building the next OpenAI and more about building the infrastructure that enables AI adoption. For investors, power infrastructure, data centres, and connectivity may ultimately prove to be the most durable beneficiaries of India's AI-driven capex cycle.
India’s dependence on imported oil and gas was once again highlighted during the recent geopolitical tensions. Does this strengthen the long-term investment case for power transmission, grid infrastructure and renewable energy?
The case for renewable energy has strengthened significantly, and the 2026 Hormuz crisis has only reinforced it. The disruption to the Strait of Hormuz highlighted the vulnerability of global fossil fuel supply chains, leading to sharp increases in oil and gas prices and underscoring the importance of energy security for major importers such as India.
This strengthens the long-term investment case for renewable energy by accelerating electrification, reducing dependence on imported fuels, and increasing the strategic importance of domestic energy generation. However, the biggest opportunity may not lie solely in renewable power generation itself, but in the infrastructure required to support it.
Grid investment is emerging as a critical theme. Transmission and distribution spending continues to rise, supported by government initiatives and the expansion of renewable energy capacity. The challenge is no longer generating power but transporting it efficiently. A significant amount of renewable capacity remains constrained by inadequate transmission infrastructure, highlighting the need for substantial investment in grid expansion, storage, and power evacuation systems over the next decade.
As a result, companies involved in power transmission, cables and wires, transformers, switchgear, and grid engineering appear well positioned to benefit from multi-year investment cycles. Regardless of whether future electricity comes from solar, wind, hydro, nuclear, or conventional sources, the grid infrastructure required to deliver that power remains essential. With India's non-fossil fuel capacity having expanded dramatically over the past decade, the next phase of the energy transition is increasingly becoming a transmission and infrastructure story rather than simply a generation story.
What is your outlook for Indian equities in the second half of 2026? What are the biggest opportunities and risks investors should watch?
The outlook for the second half of 2026 is actually more favourable than current headlines imply. By late April, the Indian market was priced at a trailing price to earnings (P/E) of roughly 20.9 times, which sits comfortably below the long-term average of 23.4 times. This suggests that valuations have transitioned from a headwind into a neutral-to-positive driver as they revert toward historical norms.
We expect earnings growth to stabilise near 16 per cent for the year, with a low probability of significant downward revisions across the board. Furthermore, the financial services landscape is poised for a re-rating as the RBI’s pivot toward easing should catalyse credit expansion and support the sector's currently attractive entry points. Collectively, these internal mechanics provide a robust foundation for corporate profitability.
However, investors must remain vigilant regarding external shocks. A serious escalation in the Strait of Hormuz, a potential US economic contraction, or sudden currency volatility that spikes inflation represent the primary tail risks.
The most potent tactical trigger would be a pivot in foreign portfolio investor (FPI) sentiment. While domestic liquidity effectively bridged the gap during the 2025 foreign exit, a return of global capital, catalysed by a softening dollar or diplomatic breakthroughs, would provide the necessary valuation multiple expansion to complement the underlying earnings story.
Historical seasonality also plays into this constructive view. July typically serves as a strong period for domestic equities, benefiting from the convergence of first-quarter earnings visibility, fiscal policy clarity following the budget, and the crucial early progress of the monsoon season.
If AI becomes as transformative as many expect, could data centres and power infrastructure become for the next decade what IT services were for the last two decades?
The parallel between the current AI infrastructure surge and the historic IT services super-cycle is far more robust than the market currently recognizes. While the previous era of wealth creation relied on leveraging a massive talent pool to service global outsourcing demand, this next phase shifts the focus from human capital to physical capital. We are moving from exporting services to attracting global investment for the very backbone of the digital age, building the hardware and energy systems that will power both global and domestic AI applications.
Crucially, the unit of scale in the AI era is the physical asset rather than the head count. Infrastructure such as high-capacity data centers, robust transmission networks, and specialized cooling systems requires intense front-ended capital expenditure, but they yield high-visibility, long-duration cash flows. Unlike traditional service models that face constant wage inflation and recruitment hurdles, these asset-heavy businesses enjoy formidable entry barriers and far more durable competitive moats once they are operational.
As the AI adoption curve steepens, the most significant value capture is shifting away from pure software and toward the enabling infrastructure. The highest-conviction winners in this cycle are likely to be power equipment manufacturers, grid transmission firms, cable suppliers, and data center operators. These players are perfectly positioned to ride a multi-year capex wave fueled by the insatiable global appetite and India's own accelerating digital transformation.
So, while the IT services comparison is directionally accurate, the nature of the alpha has changed. Shareholder value is no longer a function of how many engineers you can hire, but how efficiently you can finance, construct, and manage large-scale industrial assets. Ultimately, the magnitude of this opportunity will be governed by the speed at which India's grid stability, policy framework, and renewable energy capacity can keep pace with the ambitious infrastructure targets already on the horizon. |
