The next financial year will likely see banks and financial services stocks outperform. Its a space where investors are already noticing disproportionate amount of interest from locals or foreign institutional investors, according to Amit Ramchandani, chief executive officer, investment banking, Motilal Oswal Financial Services Ltd.
In last six months, the NSE Nifty Bank has outperformed the benchmark NSE Nifty 50. Moreover, the constituents which helped the large-cap index clock around 10% gain so far from January are banks and financial services. Kotak Mahindra Bank Ltd., HDFC Bank Ltd., and ICICI Bank Ltd. contributed the most to this outperformance.
The NSE Nifty Financial Services index has also outperformed the benchmark Nifty 50. On Tuesday, Nifty Financial Services rose 0.96% to life high of 25,297.35. HDFC Bank Ltd. and Axis Bank Ltd. contributed the most to this gain.
Beginning of rate cut cycle in India, and regulatory easing will likely help banks and non-banking financial companies deliver better financial performance. The Reserve Bank of India is actively trying to inject liquidity into the system, which will positively impact the financial services. India's economic growth revival will also help growth of this segment.
Moreover, most of these companies have not delivered good returns, which increases the chance of outperformance.
The NSE Nifty 50 has started to recover losses with the reversal of selling from foreign institutional investors. The index has corrected significantly in last six months. US President Donald Trump's protectionist trade policies have dented the risk sentiment across the world and threatened to rattle the international trade system. This has caused outflow of money out of India and many other emerging markets.
Uncertainty Over Tariff
As far as the tariff outlook and its potential impact is concerned, Ramchandani expects that India will likely emerge as beneficiary. Previously, China was leading the exports to US and a few other countries. But with the tariffs coming in, India is likely to be a beneficiary.
"The way the Government of India is negotiating with the US administration, we're confident that it's going to be extremely beneficial to India," he said.
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