War, falling markets, and a two-year window: Why Vikas Khemani is buying banks, aviation, and pharma right now

Indian markets are down roughly 15% from their recent highs of 26,300. For most investors, that number triggers anxiety. For Vikas Khemani, Founder of Carnelian Asset Management, it is triggering something closer to a shopping list.

"These uncertain times offer a great shopping opportunity," Khemani told ET Now. "Anybody who is willing to invest from a two to three year perspective — this vintage will play out really very well."
A war parallel that offers some comfort


Khemani draws a direct line between today's market conditions and the Russia-Ukraine war of 2022. Back then, oil price fears, geopolitical uncertainty, and a two-to-three month stretch of extreme market nervousness eventually gave way to a recovery. He sees the same pattern potentially playing out now.

The West Asia conflict had introduced a specific fear — that energy infrastructure could be destroyed, triggering a prolonged energy crisis. That fear, Khemani argues, may already be fading. He points to recent statements from Donald Trump as a signal that the US has both the incentive and the pressure to push for a faster resolution.

"It looks like the war is going to be resolved sooner than what the market anticipates," he said. "If that were to happen, it could be a good bounce back over the next couple of months."

He is careful to frame this as an assessment, not a certainty. But the underlying logic is clear: risk perception is highest precisely when prices are lowest, and that gap is where long-term returns are made.

Banks: the biggest potential winner

If the geopolitical situation stabilises, Khemani believes the banking sector stands to benefit the most. His reasoning is straightforward: banks have taken a beating not because of any fundamental deterioration, but because of the general market sell-off driven by external risk. Once that risk fades, they are positioned to lead the recovery.

He pushes back on the bear case for private sector banks — that shrinking profit pools and PSU bank competition are structural problems. Credit growth, he notes, has already picked up over the last two quarters. For an economy that needs to grow, credit growth is not optional.

"Many banks can grow between 12% to 15% in earnings, and some can be even more," he said. "Given the valuations they are at, there are interesting opportunities."

On NBFCs, he draws a sharp line. Carnelian stays away from smaller NBFCs with high borrowing costs, which he sees as inherently risky — forced to chase high-yield, high-risk assets just to make their margins work. His firm's NBFC exposure is concentrated in large, AAA-rated names, with Aditya Birla Capital cited as a significant holding.

Aviation: pain now, tailwind ahead

Aviation is another sector Khemani flags as interesting at current levels. Stocks in the sector have taken significant cuts in the current environment, partly due to elevated oil prices. But he sees a sectoral tailwind in underlying demand growth, and expects that falling crude prices — if and when the conflict eases — will directly improve the economics of the business.

Pharma: defensive today, growth story tomorrow

Carnelian has maintained large positions in pharma and contract development and manufacturing organisations — CDMOs — for the past two years, and Khemani shows no sign of trimming. He describes CDMOs as a long-term manufacturing theme that remains very much intact. Biosimilars, he adds, represent a large opportunity over the next five to seven years.
Domestically, pharma has served a different purpose through this downturn — acting as a defensive anchor in a volatile portfolio. With the international environment also potentially improving, Khemani sees the sector pulling double duty: stability now, growth later.

The bigger message

Carnelian has not made significant portfolio changes because of the war. Sector allocations — banking, pharma, CDMO — remain largely in place. The message from Khemani is not that the worst is definitely over. It is that for investors with a two-to-three year horizon, the current moment looks a lot more like an entry point than an exit.

"These are the times," he said, "when you get good prices on the stocks you have been wanting to buy."