Banks are showing signs of competing aggressively for market share—particularly in the retail, MSME, and NBFC lending segments—often compressing net interest margins amid tight deposit growth, said Devang Mehta, Deputy Managing Director and Chief Investment Officer (Equity) at Spark Capital Private Wealth, in an interview with Moneycontrol.
Despite the intense competition and occasional margin pressure, Mehta said his preference continues to lean toward private sector banks due to their superior structural liability franchises, consistent underwriting standards, and strong long-term return ratios.
According to him, significant wealth creation opportunities exist and should be capitalised on through proxy plays and smaller subsectors of the economy, including manufacturing, engineering, power, capital goods, consumption, financials, and healthcare.
Do you think the market is better positioned for an upward move than a major downside correction, despite intermittent exchanges of fire in the Middle East and volatility in oil prices, as investors increasingly focus on a gradual recovery in earnings growth?
The market is currently caught in a range-bound tug-of-war, balancing resilient corporate earnings against persistent geopolitical risks. Occasional spikes in Brent crude—driven by Middle East flare-ups—remain a risk.
Recent quarterly results have generally met or beaten expectations, encouraging investors to look past near-term noise and focus on fundamental recovery. Market participants anticipate a steady recovery in corporate profitability, with projected growth moving toward 12–14 percent for the upcoming quarters, helping absorb near-term shocks.
If the rally continues, which sectors do you expect to be in the driver's seat?
If the current Indian stock market rally continues, the leadership is expected to come from a blend of structural capital expenditure (capex) plays, a cyclical recovery in consumption, particularly the upper end luxury and discretionary plays, and strong financial sector businesses like NBFC’s, capital market intermediaries, AMC’s and select banks. Niche pharma and hospital businesses also should be part of portfolios.
Proxy plays and smaller sub sectors of the economy in manufacturing, engineering, power, capital goods, consumption, financials, healthcare, which are outside of the benchmark indices, is where large Wealth creation opportunities exist and has to be capitalized on.
Do you believe the market's concerns about AI replacing traditional IT services have been decisively addressed? Are you confident about the long-term growth prospects for the IT services sector?
The debate has moved past hypothetical fears. Deep structural changes are actively reshaping the sector's financial performance. The market is far from reassured. Major IT service indices have faced harsh corrections, highlighted by a around $50 billion wipeout in market capitalization across Indian IT majors alone. This reflects an aggressive pricing-in of AI-driven disruption risks.
Though some of these IT services companies now are at valuations that are attractive, but the growth curve and trajectory remains extremely vulnerable to emerging scenarios and hence, there is lack of conviction to nibble into this segment.
Do you expect the RBI to keep interest rates unchanged at least until the end of FY27?
The central bank is expected to keep interest rates unchanged at 5.25 percent for the fourth consecutive review at the upcoming Monetary Policy Committee (MPC) meeting.
For now, the central bank is more likely to prioritise growth over pre-emptive tightening, with policymakers expected to look through temporary inflation and currency pressures unless price risks become persistent. The central bank will continue relying on liquidity measures and capital inflow initiatives while keeping its focus on supporting economic growth.
Do you think the RBI will refrain from changing its full-year growth and inflation forecasts unless there is a significant global shock?
The central bank has already actively altered its full-year projections due to ongoing global shocks. In June, the RBI downgraded its FY27 real GDP growth forecast to 6.6 percent from the earlier 6.9 percent. Concurrently, the full-year headline CPI inflation forecast was increased to 5.1 percent from 4.6 percent.
These adjustments demonstrate that the RBI does not wait for a single massive global meltdown to recalibrate its data; it continuously fine-tunes parameters based on persistent, creeping global pressures.
Do you think banks are competing too aggressively for market share by lending at rates that are not value-accretive? Despite that, does your preference continue to remain in favour of private sector banks?
Banks are indeed showing signs of competing aggressively for market share—particularly in retail, MSME, and NBFC lending segments—frequently compressing net interest margins amidst tight deposit growth. Despite this intense competition and occasional margin pressure, preference continues to lean toward private sector banks due to their superior structural liability franchises, consistent underwriting standards, and long-term return ratios.
Private banks have historically demonstrated superior compounding and structural compounding capabilities across economic cycles.
Have the June quarter earnings exceeded your expectations? Do you expect corporate earnings to remain strong in the September quarter and beyond?
Yes, earnings are the ultimate driver of long-term stock prices and hence it is said that: “Market is a slave of Earnings”
India's corporate earnings for the June quarter (Q1 FY27) have surpassed Street expectations so far. The street initially forecasted high single-digit growth due to global uncertainties, tariff friction, and the geopolitical conflict in West Asia. However, data from early-reporting companies reveals a strong 19 to 20 percent aggregate top-line growth—marking a multi-quarter revenue peak. While revenue growth has been exceptionally robust, profit margin expansion or contraction varied across sectors as a result of escalating input expenses and high crude oil prices.
Going forward, corporate earnings are expected to maintain a steady recovery trajectory. However, the growth curve will likely transition into a more gradual, sector-specific recovery due to an evolving macroeconomic environment. Large-cap companies recorded stable to good numbers while mid-cap and small-cap firms delivered even stronger performance.
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