As the global financial markets continue navigating through several uncertainties including geopolitical tensions, high crude oil prices, and elevated US bond yields, fund managers in India remain constructive on the domestic markets in the long run.
In our quarterly portfolio update, fund managers highlighted the banking and financial sector as their top sector while allocating funds in a portfolio.
“Indian private banks remain well positioned to benefit from a strong credit cycle, with robust credit growth, supported by healthy retail, MSME and services demand. Asset quality remains high, while healthy capitalisation and improving credit costs provide visibility to earnings,” according to Sandipan Roy, CIO of Motilal Oswal Private Wealth.
Within the sector, Roy said large private banks offer stronger deposit franchises and balance-sheet resilience, while select mid-cap banks provide greater scope for loan growth and market-share gains.
“After the sector’s relative underperformance, valuations have become more reasonable, making large private banks attractive for core exposure, with selective mid-cap exposure for higher earnings and re-rating potential,” Roy added.
Domestic liquidity remains an important cushion. Record SIP flows and sustained mutual fund inflows continue to provide structural support to equities. However, the increasing pipeline of equity supply is absorbing a larger share of this liquidity, limiting its ability to drive a broad-based rerating.
The positive outlook of fund managers towards Indian equities despite recent concerns are driven by strong domestic demand, an ongoing capital expenditure cycle by the government, and an improving export momentum.
Brijesh Ved, Head- PMS- Kotak Mahindra AMC said, “investors should increasingly focus on companies with pricing power, strong balance sheets and exposure to structural investment themes, while remaining selective in sectors vulnerable to rising input costs, higher interest rates and a slower rural recovery.”
From an asset allocation perspective, the current macro backdrop supports a balanced yet growth-oriented strategy for Indian investors, with equities remaining central given the strength of domestic economic drivers and long-term earnings growth.
He said within equities, an increase in allocation towards high growth companies in the mid – small cap segment, as these are likely to benefit disproportionately from India’s relatively stable positioning, easing commodity and oil prices, and improving domestic growth momentum, alongside more reasonable valuations following recent corrections.
Ved’s top sector was also banking and financial services.
Why fund managers favour banking and financial stocks
Anand Shah, CIO – PMS & AIF, ICICI Prudential AMC also also picked financial services as the structural beneficiaries of India’s increasing financialisation of household savings, rising insurance penetration, and expanding wealth management industry.
He added that he preferred private sector banks, as their asset quality remains resilient, balance sheets are healthier, and valuations have become more attractive.
Market veteran Ajay Bagga preferred this sector, as large-cap commercial banks and systemic NBFCs are poised to benefit from strong balance sheets and robust credit demand despite higher systemic interest rates.
Top fund managers remain positive on Indian equities in the medium to long term despite the current volatility. They are allocating a major chunk of one’s portfolio in equities, with the banking and financial sector remaining their top choice.