Daily Voice: Quest’s Rakesh Vyas explains why he’s backing two private banks, affordable housing lenders

From FY20 to FY24, government spending was the primary catalyst for capital expenditure in India, with allocations rising from Rs 3.4 lakh crore in FY20 to Rs 9.5 lakh crore in FY24, reflecting a robust ~29% CAGR. Since the beginning of CY25, however, the government has shifted its focus toward stimulating consumption, with supportive policy measures from the RBI reinforcing this pivot.

The strategy aims to boost demand, leading to higher capacity utilization across manufacturing sectors. As this demand revival gathers strength, private sector capex is expected to gain significant momentum in the coming years.

Which sectors are on your radar for investment, given the expected revival in earnings growth in the second half of FY26?

We have maintained a constructive view on the discretionary consumption space and believe that rising disposable incomes coupled with lower GST rates—particularly during the festive season—should drive strong growth in this segment.

The broader demand revival is also likely to ease financial stress for MSMEs, benefiting lenders exposed to these sectors. In addition, we remain positive on second-order beneficiaries within consumer staples, such as chemicals, retail, and quick commerce.

Do you expect the full-year economic growth to surprise on the upside?

Following the Prime Minister’s announcement on August 15 regarding the government’s intent to rationalize GST rates, a significant portion of discretionary spending is likely to have been deferred to the festive season.

As a result, Q2 growth may see a marginal impact. However, with the ongoing policy push, 2HFY26 growth is expected to exceed earlier estimates, potentially delivering a modest upside surprise to full-year economic growth.

Are you betting on private banks over PSU banks and large NBFCs over small NBFCs?

We remain positive on the top two large private sector banks, supported by their superior asset quality and strong liability franchises.

In the NBFC space, our preference is tilted towards affordable housing lenders, where growth prospects remain robust and the segment stands to be a key beneficiary of the declining interest rate environment.

Do you believe the rally in Indian equities will continue, with rate cuts and tax reductions offsetting US tariff headwinds?

After a subdued earnings trajectory over the past 5–6 quarters, corporate earnings are expected to revive from Q3FY26, supported by the series of policy measures undertaken by both the central government and the RBI over the last 8–9 months. In addition, the recent improvement in US–India relations raises the possibility of the 25% additional tariff on Indian goods being rolled back, which could trigger a relief rally toward the end of CY25.

That said, return expectations should remain more measured, as market performance is likely to track earnings growth, with limited scope for a meaningful re-rating of Indian equities in the near term.

Do you think the RBI will follow the US Federal Reserve's path of cutting rates by 25 bps and signaling two more cuts in 2025?

The RBI has front-loaded rate cuts over the past 8–9 months, and while recent GST reductions are expected to lower CPI by ~30 bps, the central bank may prefer to wait for the full transmission of earlier cuts before acting further. As a result, additional rate cut is more likely toward the latter part of CY25, in our view.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.