Amid global geopolitical shock, time to look inwards and focus on domestic-oriented sectors, says Motilal Oswal's Siddhartha Khemka

After regaining on Thursday, equity markets slipped once again on Friday, as investors remained jittery amid the ongoing conflict in West Asia and uncertainty on when it will end and how much it will impact India. In this backdrop, investors could perhaps do well looking at domestic-focused sectors such as banks and power, according to Siddhartha Khemka, head of research – wealth management at Motilal Oswal Financial Services.
 
“Earlier, we were looking at trade-related impact; now we are looking at war-related impact. Energy touches most sectors, and there will be first, second and third order impact. If oil prices rise, inflation will go up, and that will have an impact on interest rates and bond yields. But look at domestic-focused themes that are less likely to get impacted due to geopolitical and global trade-related issues,” explained Khemka.
 
Overall, the third quarter results raised expectations of corporate earnings beginning to rebound, after slow growth over the last several quarters, before this war-related disruption. Khemka still expects corporate earnings to grow 12-15% in the next financial year ending March 2027.
 
According to him, power is one sector that is going to see massive demand in the coming years, particularly with the usage of AI expected to go up significantly. While that will fuel electricity generation companies, capital goods companies, makers of transformers, wires and cables, transmission and distribution companies, all stand to benefit in the long-term, he opined.
 
“Huge demand is going to come in the next 4-5 years. Capital goods, metals, transmission and distribution companies, battery storage companies, they are all likely to be huge beneficiaries,” said Khemka.
 
Upstream oil companies also stand to benefit should crude oil prices top $100-110 a barrel.
 
Banking, financial services and insurance, consumer durables, telecom and new generation companies like quick commerce are among the other domestic-oriented sectors that Khemka remains positive on.
 
Notably, with geopolitical tensions likely to remain elevated, defence manufacturers are expected to see huge benefits.
 
“Defence companies will be a key beneficiary. Sentimentally. But structurally, the world will spend massively on defence. So, Indian defence companies, which are making missiles, anti-missile systems, etc., they will benefit in the short-term, but I also see them as long-term structurally positive,” Khemka stressed.
 
IT companies are facing AI-led disruption, and some concerns that increasing adoption of AI by enterprises will disrupt the business models of Indian software exporters. This is one area where Khemka remains underweight in the near-term, at least.
 
“Roughly about 18-20 per cent of revenue on an aggregate basis for Indian IT companies used to come from legacy IT services. Whether they will get replaced or not, how AI will help these companies themselves utilise to deliver services, we don’t know. IT companies are saying they are adopting AI, have their AI stack and AI-related solutions ready. But things are uncertain in the near-term,” stated Khemka.
 
Over the past 12-15 months, there has been a massive selling by foreign institutional investors, amid the global geopolitical and trade uncertainties. So far in 2026, foreign portfolio investors have sold Rs 30,917 crore in Indian equity. In 2025, they had offloaded over Rs 1.66 lakh crore from the equity market, according to data from NSDL.
 
With corporate earnings beginning to look up, FIIs may start relooking at India, but selectively, feels Khemka.
 
“Energy supply remains a big challenge for us. If we can build alternate supply chains, reducing dependency on West Asia, and the inflation impact is not as much, then FIIs will again start looking at us positively. After time correction, Nifty is also now seeing a price correction. Wherever there is earnings recovery, some FII flows will come. But they will not come back in hordes,” he said.