Sridhar Sivaram, Investment Director at Enam Holdings, believes investors should remain selective in financials, preferring non-banking financial companies and housing finance companies over banks and insurance. He expects manufacturing to remain a long-term growth theme, while regulatory changes and structural shifts could continue to reshape the banking and insurance sectors.
Sivaram said he is less bearish on private banks than he was a few months ago, largely because valuations have corrected and recent rate hikes could temporarily support margins. However, he continues to remain underweight on the sector as competition from public sector banks has become structural rather than cyclical."My view is still underweight private banks and PSU banks, underweight banks in general," Sivaram said.
He noted that PSU banks have narrowed the technology gap with private lenders and are gaining market share across retail lending. "The technology advantage that private sector banks have is no longer exclusive," he said, adding that this has eroded the industry's profit pool.
On insurance, Sivaram maintained a cautious stance, arguing that the industry's business model remains heavily dependent on selling savings products instead of protection. He believes regulatory reforms and possible changes to tax incentives could weigh on the sector over the medium term.
Explaining his concerns, Sivaram said, "I haven't changed my view on insurance; still remain bearish." He added that products such as ULIPs continue to benefit from tax advantages that may not remain indefinitely. "If they change their business model, I'll be the first one to come and tell you that I want to buy insurance, but not today," he said.
He also flagged Bima Sugam, the proposed direct insurance platform, as a development that investors should monitor because it could alter distribution economics across the industry. Sivaram made an exception while discussing ICICI Bank, praising its approach to insurance distribution.
Referring to the lender's strategy, he said, "What is not good for the customer is not good for the bank," adding that the bank has chosen not to prioritise insurance commission income at the expense of customer interests. Despite his caution on financials, Sivaram remains positive on several sectors.
He said manufacturing continues to present a significant long-term opportunity across pharmaceuticals, power equipment and precision engineering, although valuations remain elevated. He also prefers NBFCs and housing finance companies, where valuations have become more reasonable while growth remains healthy.
Sivaram was also cautious on the IPO market, saying several recent listings have come at demanding valuations. He urged institutional investors to be more disciplined on pricing, noting that some overseas companies have been able to secure significantly higher valuations by listing in India.
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