Expect consumption revival in FY26; positive on BFSI, healthcare, says Amit Premchandani of UTI Mutual Fund

Expert view on markets: Amit Premchandani, Fund Manager- Equity, UTI Mutual Fund, points out that there have been marginal cuts in earnings estimates for FY26 post results season. However, the pace of cuts has decelerated. In an interview with Mint, Premchandani says UTI MF’s in-house equity valuation index suggests that Indian equities are in the fair value zone. Talking about sectors that look attractive at this juncture, he says he is positive about BFSI and healthcare from a long-term perspective. Here are edited excerpts of the interview:

In what way could the market move in the next six months? Can we expect a double-digit upside in the Nifty 50 in CY25?

Earning growth has been comparatively strong for FY21- 24. It was a period of positive earnings revisions which drove market returns and valuations.

FY25 has seen a reversal in this trend, and downgrades have started as compared to expectations.

We have seen marginal cuts in earnings estimates for FY26 post results season.

However, the pace of cuts has decelerated. FY25 has seen a sharp deceleration in capex and consumption, and we expect a revival in consumption in FY26.

Capex trends are likely to be mixed, with a pick-up in central government spending, while state governments may continue to lag, given the fiscal push towards cash transfer.

Another trend that has emerged over the past few years is India Inc.’s improving free cash flow profile, which supports valuations.

We have our in-house equity valuation index, which is currently guiding that equity is at the fair value zone, and investors may continue with their equity allocations.

What is driving activity in the mid and small caps? What should be our strategy for these segments?

Historically, we have seen mid-caps providing better risk-adjusted returns over large caps as compared to small caps.

Although the valuation premium of mid- and small-caps over large caps remains high, significant corrections over the last few months have reduced froth, creating stock-specific opportunities in these caps.

Earning downgrade cycle, which started 12 months back, may have peaked, which reduces the risk of sharp dislocations.

In the two equity strategies I manage, namely UTI Value fund and UTI Dividend Yield fund,

allocation to mid and small cap has been close to 30 per cent over the last one year.

What are your views on Q4FY25 earnings? What are you reading between the lines?

Earnings were a mixed bag in Q4FY25. Banks’ earnings were decent, with their resilience in terms of margins and credit cost, though growth was somewhat muted.

Oil & gas was another sector which saw earnings upgrades on the back of OMCs. Cement reported a sharp improvement in margins on a QoQ basis, while the capex-oriented sector reported a slowdown in growth.

IT was a mixed bag. The top 5 companies faced growth pangs, while their smaller counterparts continued to report strong topline growth.

Consumption revival remains elusive, though the stimulus from monetary and fiscal policy may reflect in the second half of the financial year 2026 (H2FY26) numbers.

Telecom was the sector which stood out in terms of revenue and profit growth.

What is the outlook for the IT sector? Do you see opportunities in the sector?

The Indian IT sector has demonstrated growth and resilience over multiple technology cycles of the past 2 decades.

This sector has managed to come out of suspected headwinds of movement to digital and cloud, with steady gains in market share over the last two decades.

The sector is now facing new potential disruption in the form of deflationary impact of agentic AI, which is likely to reduce the revenue pie from customer service and infrastructure management services while increasing the revenue pie for Data analytics and integration of AI agents in clients’ IT architecture.

Most Indian IT firms have the DNA to navigate the tech cycles efficiently.

The volatility in the US macro environment due to tariffs has reduced visibility for FY26 growth, and management is cautious about new investments.

However, the sector is coming out of 2 years of slowdown and has some pent-up demand, which is likely to drive mid to high single-digit growth for the next two years. The sector has one of the highest FCF yields, with a generous dividend policy.

Can the banking sector lead the next leg of a rally? Do you see value in PSU or private banks?

I am positive on BFSI as a sector, especially large private banks. We are amid the relaxation of regulatory policies for banks and NBFCs, as well as a more accommodative monetary policy.

Monetary policy has turned expansionary after a timely diagnosis of the issues in unsecured lending at an early stage and largely eliminated terminal risk.

The market has largely ignored banks’ highest ROA profile in history, low to mid-teen loan growth in an environment of low single-digit volume growth across sectors, decent asset quality, and adequate capital.

The scare from unsecured credit expansion seems to be limited to microfinance, while the rest of the portfolio has largely remained robust.

Large private banks stand out for their intrinsic value framework and provide an opportunity for those of us who follow the intrinsic value approach.

What are your assessments of the domestic macro?

Domestic macros have improved over the last six months, with a sharp improvement in the liquidity environment followed by timely rate cuts by the RBI. Fiscal policy has recognised the need for a stimulus in urban consumption, which has been lagging.

The recent GST collection trend indicates a pickup in growth in recent months.

The sharp increase in direct tax exemption limits will boost the urban middle class and likely create a surplus of almost ₹1 lakh crore in FY26 in the hands of individual taxpayers, which can be leveraged as monetary policy turns benign.

The inflation trajectory is well under control, with commodity prices acting as a tailwind and the early arrival of the monsoon providing further comfort, which will also boost rural income and sentiments.

However, the global macro environment and geopolitics remain uncertain and volatile.

How should we play India’s economic growth? What sectors offer opportunities?

Consumer discretionary should benefit from the various policy measures over the last two quarters, while some parts of the sector, particularly durable goods, should benefit from the real estate cycle as a late-cycle beneficiary.

Urban consumption that went through a rough patch over the last one year due to high inflation and low per capita income growth, tax cuts and declining inflation, may see some cyclical recovery in this segment.

We like BFSI and healthcare from a long-term perspective in terms of the sector which offers reasonable growth and comfortable valuations.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.