Daily Voice: This CIO maintains bullish stance on PSU banks, points to re-rating upside

Aparna Shanker is the CIO - Equity at The Wealth Company Mutual Fund

PSU banks may still have re-rating potential, says Aparna Shanker, CIO - Equity at The Wealth Company Mutual Fund, who continues to hold a constructive but selective stance on the sector.

Her preference is tilted toward PSU banks that are showing consistent underwriting discipline and technology-led operating efficiency, rather than a broad-based overweight on the entire segment.

She strongly expects more exciting IPOs to tap the capital markets soon. "With volatility reducing and investor appetite staying strong, I expect a line-up of high-quality IPOs across manufacturing, digital infrastructure, EV ancillaries, and profitable tech-enabled businesses," she said in an interview to Moneycontrol. Here are edited excerpts:

Do you expect the government to reduce the number of PSU banks from 12 to 2–3, with the announcement expected in 2026?

The government has consistently signalled its long-term intent to create larger, stronger PSU banks. While moving from 12 to 2–3 banks is an ambitious objective, 2026 could indeed mark the beginning of more definitive announcements. However, such consolidation will inevitably be phased, given integration, cultural alignment, and capital planning requirements.

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Aparna Shanker

CIO - Equity|The Wealth Company Mutual Fund

The broader goal remains to enhance competitiveness, efficiency, and to equip PSU banks to support India’s long-term credit cycle, especially as credit demand from infrastructure, energy transition, manufacturing capacity expansion, and MSMEs continues to accelerate. A deeper, more stable PSU banking system is essential to fund this structurally rising credit requirement.

Are you betting big on PSU banks?

We maintain a constructive but selective view on PSU banks. Many have completed a full balance-sheet repair cycle, demonstrating improved asset quality, stable credit costs, and better capital adequacy.

Valuations still offer room for re-rating. That said, our preference is tilted toward PSU banks that are showing consistent underwriting discipline and technology-led operating efficiency, rather than a broad-based overweight on the entire segment.

Do you think FY27 earnings will be critical for market performance going ahead, although a likely finalization of the India–US trade deal sooner rather than later could provide some boost?

Yes, FY27 is shaping up to be an important earnings year. FY26 may remain relatively muted due to margin compression and slower global trade momentum.

By FY27, we expect a more supportive macro backdrop—potentially softer interest rates globally, improving global trade flows, and clarity on the India–US trade agreement. Even a partial conclusion of the trade deal could aid sectors such as IT services, pharma, electronics manufacturing, and defence. This combination positions FY27 as a more broad-based earnings recovery year.

Do you see India Inc delivering solid mid–double-digit earnings growth in FY27, compared to likely single-digit growth in FY26?

Our base case does point to mid-double-digit earnings growth in FY27. The drivers include recovery in global demand, a strengthening capex cycle, healthy credit conditions, and broadening sector-level participation.

FY26, in contrast, is likely to reflect moderation after a few exceptionally strong years. The normalization in margins, especially for domestic cyclicals and exporters, is also a factor. But structurally, the earnings cycle remains intact and should re-accelerate.

Do you expect more exciting IPOs to tap the capital markets soon?

Absolutely. With volatility reducing and investor appetite staying strong, we expect a line-up of high-quality IPOs across manufacturing, digital infrastructure, EV ancillaries, and profitable tech-enabled businesses. India’s deepening domestic liquidity pool, particularly through SIPs, provides a supportive environment for credible companies seeking to list.

Do you think a major correction in US markets (which have been boosted by the AI theme) is unlikely to significantly impact Indian markets?

While a sharp correction in US equities may create short-term volatility globally, the structural impact on Indian markets should be limited. India today is significantly more domestically driven. Robust household savings, SIP flows, and improving corporate profitability give India a degree of resilience.

Sectorial pockets may respond to global moves, but the medium-term trajectory remains anchored in India’s own fundamentals. Being that said, considering global coupling, Indian equity market may see rippling effects of any correction in US markets.

Which two sectors are on your radar?

Industrials remain a key focus, supported by policy incentives, onshoring, and a visible capex cycle. We also continue to favour financials, lenders, capital market plays and insurers, where formalization, productivity improvements, and better balance-sheet strength are translating into durable growth opportunities.

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.