With geopolitical tensions easing and crude oil prices declining, a prominent fund manager views the market outlook as quite positive, though not all segments offer equal opportunity. V Srivatsa, Executive Vice President and Fund Manager at UTI AMC, outlined where value appears strongest and where risks may be higher. He identified falling crude prices as the main positive change in India’s macro conditions. Earlier increases in oil costs had widened the fiscal deficit, strained the current account, raised inflation, and reduced corporate profits. As prices ease, he anticipates stronger economic data in the second half of the year. Still, the next two quarters may show lingering effects, with possible earnings cuts of 2-3 percent not yet fully reflected. Despite short-term uncertainty, Srivatsa sees the Nifty 50 valued attractively at 16-17.5 times on a two-year forward basis, with expected earnings growth of 14-16 percent for FY28. Midcaps trade at a 30-40 percent premium to largecaps, near record levels. While some midcap areas like pharma and power equipment show stronger earnings growth, the valuation difference appears excessive. Largecaps, especially banks, offer better value as stable conditions support Nifty earnings. He prefers private sector banks over PSU banks, noting that PSU outperformance has narrowed the valuation gap to recent lows. Private banks have faced heavy foreign selling, leaving them undervalued, with stable net interest margins, solid credit growth, and manageable credit costs. Foreign investors have sold Indian equities to favor Korea and Taiwan amid AI-driven gains. Srivatsa expects this trend to slow as momentum there fades, potentially returning flows to India. In a contrarian stance, UTI AMC holds largecap IT stocks despite sector concerns. These names trade at 12-14 times earnings with 5-6 percent dividend yields, positioning them well for future enterprise AI adoption.
