Daily Voice: Large private banks remain core bets; select PSU banks offer tactical opportunities, says Himanshu Kohli

While we were cautious during the 2021 IPO frenzy due to speculative valuations and a ‘growth-at-all-costs’ mindset and focus on GMVs, the landscape for new-age companies has fundamentally shifted post the funding winter. Today, the focus has moved from hype to fundamentals. We're seeing a clear pivot to profitable growth, with companies strengthening unit economics and benefiting from operating leverage.

Following a significant correction (up to 70 percent) from their all-time peaks for most new age tech stocks, valuations are now less frothy compared to the past.

We believe the biggest value creation occurs as these businesses demonstrate a clear path to profitability. Therefore, we are selectively turning positive on the sector, as it is now backed by prudence and tangible fundamentals.

Do you think FY27 is expected to be the year of upward margin & lower credit cost with around 14-16 percent loan growth for the financials?

Yes, the consensus among analysts indicates that FY27 is shaping up to be a favourable year for the Indian financial sector. Projections for loan growth are robust, with estimates pointing to a low double-digit growth, driven by strong demand in retail and SME segments. After a period of pressure, net interest margins could stabilize in H2-FY26 and continue the trajectory in FY27 as the impact of improving liquidity translates into lower lending costs.

Furthermore, credit costs are anticipated to remain low, supported by healthy corporate balance sheets and multi-decade low bad loan ratios, which have improved risk profiles for banks. These combined factors point towards a significant rebound in earnings and overall profitability for the sector.

What is your preference, PSU or Private Banks, or both, considering the potential healthy credit growth in the coming quarters, as well as triggers in PSUs?

Large private sector banks remain a core portfolio holding as near-term growth prospects are reflected in current valuations. Further competition for deposit mobilisation is likely to remain elevated, pressurising margins.

We see a tactical opportunity in select PSU banks as the balance sheet remains strong and valuations remain attractive. For the first time in over a decade, PSUs have outpaced private banks in loan growth in the recent past (FY25). The recent RBI reforms are a medium-term tailwind for the banking sector.

Do you think the uncertainty over the market will end with the news of the India-US trade deal signing? Do you expect it to come by December?

An India-US trade deal remains the most awaited positive trigger for Indian capital markets. The current imbroglio adds to market uncertainty, with markets trading range-bound for the last 15 months.

We are halfway past the Q2 earnings season, and the results appear encouraging, driven primarily by monetary and fiscal stimulus announced since the start of the year. A resolution would restore predictability for export-oriented sectors like IT and textiles, likely boosting investor confidence and foreign capital inflows. However, the timelines for the India-US trade deal remain uncertain.

Which sectors were surprised by the September quarter earnings?

Based on the September quarter earnings declared thus far, the market witnessed surprising strength in some of the cyclical sectors, which significantly outperformed expectations. A clear trend of earnings rebound was visible, driven predominantly by the Oil & Gas, Capital Goods, Cement, and Metals sectors.

The Mid-cap segment has continued its earnings outperformance, delivering higher growth than initially estimated, with impressive results from sectors like Technology, PSU Banks, Real Estate, and Non-lending Non-Banking Financial Companies (NBFCs). Automobile OEMs also delivered results that were largely ahead of estimates.

Do you see the possible low global growth weighing down on the earnings to a certain extent?

While a persistent global growth slowdown could weigh on the Indian economy, a flurry of fiscal and policy measures announced during the year likely limit the extent of further downside. We expect the nominal growth to pick up in FY27, helping increase corporate profitability and margins.

The Q2FY26 earnings season has started on a strong note, with a notable 15 percent YoY growth in adjusted net profits for 309 companies in Nifty 500, which have declared results so far. This growth is largely driven by domestic sectors, with commodity companies showing a strong comeback. Although we are yet to see strong numbers in topline growth, which is still on the lower side at 6.5 percent YoY. The impact of the global environment is visible in export-oriented sectors.

However, as per IMF projections, the Indian economy is forecasted to grow at a robust 6.6 percent in 2025 (6.8 percent as per RBI estimates), significantly outpacing the projected global growth of 3.2 percent. This resilience is anchored by strong domestic fundamentals. Private consumption, which accounts for over 60 percent of India's GDP, provides a substantial cushion against external shocks. Therefore, while global trends may weigh on certain companies, the broader market's earnings trajectory will be primarily shaped by India's strong domestic demand story.

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