According to Karthikraj Lakshmanan, Senior Vice President and Fund Manager-Equity at UTI AMC, who spoke with Moneycontrol, private banks will continue to increase their market share in the long run since they have been investing in technology more quickly and their profitability indicators have improved.
As long as this concept is valid, private banks could be worth more than PSUs.
He believes that at least one more rate decrease may occur in 2026. “As the benign food inflation base disappears, we would agree with RBI’s projections of inflation bottoming out in FY26 and progressively inching up in the first half of FY27,” he said.
Is it wiser to refrain from placing big investments in the AI industry?
There are very few businesses that operate in data centers, data analytics, and other related fields. In general, there are not enough listed businesses in India that deal with AI.
Although the route to profitability and return ratio on these expenditures is now unclear, hyperscalers in the US are going into significant capital expenditure mode for the next years. Even if the industry may expand quickly and increase productivity, it may take a few years to determine how it develops and which sectors ultimately benefit, so it may be too early to draw significant conclusions.
After the correction, the Indian IT industry, which has been negatively impacted by the expansion of AI in the stock market, seems to be fairly priced and may have strong prospects for implementing AI for their customers.
Do you anticipate a PSU bank stock rating change?
In general, asset quality problems in the banking industry, particularly PSU banks, have significantly decreased in recent years after the COVID-19 pandemic. Because of the government ownership trust, PSU banks have always enjoyed the liability franchise. A few PSU banks have a solid franchise overall and effective asset quality monitoring.
Although PSU banks’ ROAs are lower than those of their huge private rivals, their RoEs are now similar since they typically have considerably more debt. Currently, there is a smaller growth gap with private banks as well.
In this regard, there could be further space for re-rating since the valuation difference in the well-managed PSU banks has been widening. Longer term, however, private banks will continue to increase their market share, have been investing in technology more quickly, have a larger absolute workforce than PSU banks even though they currently have a smaller overall market share, and have better profitability metrics. As long as this construct is true, private banks may be worth higher valuations.
Do you believe that unless a trade agreement is struck, the rupee will continue to decline at a reasonable rate?
The movement of the currency is unpredictable, particularly in the short term.
Since the extra tariffs in August 2025, the markets have been anticipating the trade agreement with the United States. Between 2020 and 2024, the rupee was among the best-performing currencies; perhaps this has since changed. Export competitiveness and even flows may benefit from rupee weakness as Indian markets become even more alluring in terms of dollars after the prior year’s time correction and rupee depreciation, during which other developing markets had robust double-digit gains.
Do you think the stock market will perform better in 2026 than it has this year?
As previously said, valuation excesses have decreased, and India’s macros—fiscal deficit, government debt-to-GDP, current account deficit, foreign exchange reserves, GDP growth, and inflation—are all extremely robust. Corporate and bank balance sheets are robust and have few problems with asset quality.
There are no significant areas of concern in retail lending, despite the fact that household borrowing has been gradually increasing. The favorable base, tax cuts that encouraged spending, favorable monsoons, advantages of enhanced liquidity, 1.25% rate decreases from peak that aided growth, and the nominal GDP’s double-digit trajectory in FY27 that aided corporate revenue growth are all anticipated to contribute to an acceleration of earnings growth in FY27.
Since Indian families are among the world’s biggest gold holders, the sudden increase in gold prices has greatly increased their wealth and may contribute to the positive wealth impact.
Longer term, India has a demographic advantage that will materialize as long as the sizable labor force that is recruited annually is used effectively. Increasing productivity may assist raise per capita income from the present levels, which are close to $3000, in the long run. On the other hand, the majority of other big countries already have high per capita income and an aging population, which restricts development.
Do you believe that FIIs may reenter the market as a result of the tariff rate reduction?
The US-India trade agreement lowering the high tariffs would be sentimentally beneficial for the economy and growth, even if the fundamentals are generally appealing as previously indicated. Investors, whether local or foreign private investors, would eventually be drawn in provided the fundamentals and values were favorable.
Are you optimistic about the hospital and healthcare industries?
In the hospital and healthcare industries, we would be picky. High growth names and businesses with strong return ratios are preferred. If one looks over the last ten years, the Pharma Index has often performed among the poorest. The main market for generics, the US, has seen significant price reduction throughout this time, and there have also been regulatory challenges.
Overall, however, the CDMO market for exports is expected to develop rapidly and might support India’s “made in India” initiative. Although they are affected by price regulations and trade generics, domestic pharmaceuticals are similar to consumer staples that are branded investments with respectable growth, strong margins, and return ratios.
However, the market for hospitals and diagnostics has grown healthily because to the quick rise in domestic health insurance coverage and the post-COVID rise in health awareness. As long as return ratios remain strong, organized hospital chains will continue to expand beds at a healthy rate.
Although growth is anticipated to be in the low double digits due to the difficulty of scaling in new cities and states, the diagnostic area is more asset light and offers strong return ratios.
Do you think the RBI will lower rates in 2026 after looking at the December policy? Do you think inflation will increase in the next year?
In December, the Monetary Policy Committee (MPC) maintained its neutral position while reducing the repo rate by 25 basis points to 5.25%. According to statistics, inflation is lower than anticipated, and in the near future, GST cutbacks will further exert downward pressure.
Thus, at least one further rate reduction may occur in 2026. would support the RBI’s predictions that, as the base of benign food inflation diminishes, inflation would level out in FY26 and progressively increase in the first part of FY27.
