India’s domestic economy continues to demonstrate resilience, with revenue and earnings growth remaining healthy despite geopolitical uncertainty, according to a report by portfolio management services venture OmniScience Capital. Even if the West Asia conflict does not end immediately, India could remain in a high-growth mode for the current and coming years if other factors remain supportive.
There is a possibility of 7%+ GDP growth in the current fiscal year, according to Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital. The markets will increasingly differentiate between companies based on their future cash flows. Undervalued businesses are expected to see their valuations improve while expensive companies could remain stagnant until their earnings catch up, as per the report.
PSU banks having strongest alpha potential
Banking remains the most compelling opportunity, according to OmniScience, combining strong balance sheets, double-digit growth and valuations that remain meaningfully below intrinsic value. Vikas Gupta describes it as a theme that is “completely mispriced.”
Within the segment, PSU banks offer the highest alpha-generation potential over the medium term. PSU banks have some of the cleanest balance sheets in decades, while delivering double-digit asset and revenue growth, said Vikas Gupta. He added that the public sector banks are trading at significant discounts to intrinsic value.
While midcap private banks could see their valuations unlocked earlier and potentially generate higher IRRs, OmniScience remains overweight across the banking sector, including PSU, large private and midcap private banks.
Valuations temper enthusiasm for consumer plays
OmniScience remains underweight on consumer discretionary despite satisfactory revenue and
earnings growth, as valuations already appear to discount significant future growth. The same
valuation discipline keeps the firm cautious on hotels, where strong fundamental performance alone does not provide sufficient comfort without a meaningful discount to intrinsic value.
IT faces fundamental uncertainty; AI bubble risk remains overseas
IT remains one of the sectors to avoid, according to Vikas Gupta, owing to uncertainty around the sector’s workforce required to deliver future workloads and the resulting difficulty in forecasting cash flows.
“Irrespective of whether a bubble exists, the unprecedented investment by Big Tech will ultimately need to translate into revenues, profits and cash flows” Vikas Gupta said, adding that any potential bubble in regards to AI is more likely to be concentrated in US companies, primarily because Indian corporates are not deploying capital towards AI at comparable levels.
