PSU Banks, Defence Or IT? What JPMorgan’s Rajiv Batra Is Betting On

The country’s investment landscape is being reshaped by reasonable valuations in financials, strong domestic demand recovery, a vibrant capital-markets cycle, and early but promising themes across defence, EMS and other new-age sectors, said Rajiv Batra, Head of Asia and Co-Head of Global Emerging Markets Equity Strategy at JPMorgan.

While optimism around AI is building within the IT sector, Batra believes it is far too early to call it a meaningful tailwind, placing IT in a mid-cycle zone rather than a high-conviction opportunity.

Batra, while talking to NDTV Profit, said his strongest preference is for the financials sector, particularly PSU banks. He notes that valuations here look far more reasonable compared to other pockets of the market, and both return-on-assets and loan growth trends remain supportive.

PSU banks, in his view, are better placed at the moment than private lenders, which are still coping with margin pressures. He adds that once the RBI’s rate-cutting cycle begins, private banks should also benefit as concerns around NIM contraction ease.

On the industrial side, Batra sees a major transformation underway in India’s capex cycle. While government spending remains strong, private-sector capex is increasingly shifting from traditional industries such as metals, cement and energy to new-age sectors.

These include defence manufacturing, EMS, data centres, renewables and electric-mobility infrastructure. He notes that post-Covid domestic demand was weak for nearly four years, keeping capacity utilisation low and delaying new investments. But with domestic demand now returning, driven by policy support including GST measures, utilisation rates are expected to move higher, paving the way for broader capex revival from fiscal 2027 onwards. Until then, investors should remain selective and focus on sectors already witnessing strong investment flows, Batra said.

Where Batra remains cautious is the IT sector. JPMorgan has been 'underweight' on IT for over a year, and he believes it is still too early to claim that AI is shifting from a headwind to a tailwind.

According to him, the industry is currently in the AI build-out phase, with true enterprise-level adoption likely 12 to 18 months away. He recalls that a similar narrative played out last year, when investors became prematurely optimistic about AI monetisation.

Currently, global software-services players are again seeing early signs of improvement, but Batra argues that the sector remains in a mid-cycle stage. Monetisation has not yet scaled, earnings growth remains weak and valuations, based on PEG ratios are still not compelling enough to warrant aggressive positioning. For IT to become attractive again, he believes sectoral valuations may need to fall to around 15–16x forward earnings.

A long-term structural theme underpinning his view on financials is the rise of domestic participation in capital markets. Today, household ownership of equities in India remains in low single digits, far below levels in Taiwan or South Korea. With real estate offering limited flexibility and fixed-income returns turning increasingly muted, Batra sees equities emerging as a preferred asset class.

This shift, he believes, will keep India’s capital-market ecosystem vibrant throughout the next decade, supported further by generational wealth transfer and the ongoing financialisation of household savings.