Daily Voice: Private banks may deserve higher valuations than PSUs, says UTI AMC’s Karthikraj Lakshmanan

There are hardly few companies having some operations in the Data centres, data analytics and some other ancillary beneficiaries. Overall, we don’t have enough listed companies in India on the AI space.

In US, the hyperscalers are getting into heavy capex mode for next few years while the path to profitability and return ratio on these investments is not very clear as of now. While the space may have high growth and improve productivity, how it evolves and which segments eventually end up benefitting is something which may play out over few years and it may be too early to arrive at meaningful conclusions.

Indian IT sector which has been at the receiving end in the stock market due to AI growth seems to be attractively valued after the correction and could have good opportunities in AI implementation for their clients.

Do you expect a re-rating in PSU bank stocks?

Overall asset quality issues have come down drastically in last few years post-covid for the banking sector and especially the PSU banks. PSU banks have always had the liability franchise due to the government ownership trust. Select PSU banks have strong overall franchise with good control on asset quality.

While RoAs of the PSU banks are lower than the large private peers, they tend to have much higher leverage and hence the RoEs are comparable currently. As of now, the growth differential also is less with the private banks.

In this context, the valuation gap in the well-run PSU banks have been moving up and there may be more room for re-rating. However, in longer term, private banks will continue to gain market share, have been spending on technology at a faster pace, have higher absolute employee base than PSU banks today despite lower total market share and the profitability metrics have been better and hence may deserve higher valuations as long as this construct holds true.

Do you think the rupee will continue to weaken at a moderate pace until a trade deal is reached?

It is impossible to predict the currency move, especially in near-term.

The trade deal with US has been anticipated by the markets for some time now since the additional tariffs in August 2025. Rupee was one of the best performing currencies between 2020-24, maybe some of that has reversed. Rupee depreciation may help in export competitiveness and even flows as the Indian markets become even more attractive in dollar terms post last 1-year time correction and rupee depreciation during which period other emerging markets have had healthy double-digit returns.

Do you believe 2026 is likely to be a better year for the equity market than the current year?

Valuation excesses have come down as discussed above and Indian macros are very strong whether it is fiscal deficit, Government debt-to-GDP, current account deficit, forex reserves, GDP growth and inflation. Balance sheet of corporates and banks are strong with minimal asset quality issues.

While household leverage has been inching up, there is no major pockets of worry in retail lending. Earnings growth is likely to accelerate in FY27 helped by the favourable base, tax cuts boosted consumption, good monsoons, benefits of increased liquidity alongwith 1.25% rate cuts from peak aiding growth and as nominal GDP gets into double digit trajectory in FY27 aiding corporate revenue growth.

The sharp rally in Gold prices adds significantly to the wealth of Indian households which are one of the largest holders of gold globally and that could add to positive wealth effect.

From longer term perspective, India has demographic advantage which would play out as long as the large work force getting added every year gets productively employed. Productivity improvement can help increase the per capita income from current near $3000 levels for long-time to come. In contrast, most other large nations have an aging population and already have high per capita income limiting growth.

Do you think the reduction in tariff rates could bring FIIs back to the market?

While the fundamentals are relatively attractive as discussed before, US-India trade deal bringing down the high tariffs would sentimentally be positive for the economy and growth. Eventually if fundamentals are positive and valuations favourable, investors, whether domestic or FPIs, would be attracted automatically.

Are you bullish on the healthcare and hospital space?

We would be selective in healthcare and hospitals space. Preference is for high growth names and companies with healthy return ratios. Overall, Pharma as an Index has been one of the worst performing if one looks at the last decade. This is a phase when generics have faced huge price erosion in US, which is the largest market for them and there have been regulatory headwinds.

However, overall, within exports, the CDMO space promises to be of high growth and could help in India’s make in India drive. The domestic Pharma is like consumer staples being branded plays with reasonable growth, healthy margins and return ratios though they are impacted by price controls and trade generics.

On the other hand, with domestic health insurance penetration increasing rapidly and post-covid increase in health awareness, diagnostics and hospitals space has seen healthy growth. Organised hospital chains have continued to add beds at a healthy pace and continue to do so as return ratios are healthy.

Diagnostic space is more asset light and has good return ratios though growth is expected to be in low double-digit as ability to scale in new cities/ states has been a challenge.

After reviewing the December policy, do you see the RBI cutting rates in 2026? Do you expect inflation to rise next year?

Monetary Policy Committee (MPC) cut Repo rate by 25bps to 5.25% in December Policy while maintaining a neutral stance. data shows inflation is lower than expectations with GST cuts also further putting downward pressure in near-term.

Hence, there could be atleast one more rate cut in 2026. Would concur with RBI’s expectations of inflation bottoming out in FY26 and gradually inching up in first half of FY27 as benign food inflation base fades.

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