Gautam Chhaochharia, Head of Global Markets India at UBS, said the broader financial services space, including insurance and capital markets, remains an important theme.
For the headline indices, financials could prove particularly important.
“Financials, that is the key sector to watch because we are seeing clearly growth coming back. Now, the other idiosyncratic part of the index is a lot of the financial stocks have had their own situations around management change, etc. Now, they will all get solved in the next 3-6 months and that is the key for the market headline indices to really move. Because the fundamentals are falling in place very clearly and valuations are no longer or have not been a challenge in that space anyway,” he said.
IT and consumption, by contrast, are further behind. On IT specifically, Chhaochharia doesn’t see foreign investors returning in a hurry — they’ll want to see clear evidence of a turnaround, not just anticipate one.
Diviya Nagarajan, Head of India Research and Apac regional Product manager added some nuance here. Much of the recent optimism on banks is being read as cyclical — driven by the recent surge in FCNR(B) deposit inflows (a scheme allowing NRIs to hold foreign currency deposits in Indian banks) and a pickup in credit growth.
But UBS’s analysts have been digging into something more structural: physical bank branches still matter enormously for gathering deposits, even in a digital-banking world. More than 60% of deposits in the system are still household deposits, and the large private banks that have been expanding their branch networks are the ones capturing that growth.
That, she argued, gives some of these banks a longer-term tailwind beyond the current cycle — even if a few of them are dealing with the near-term management issues Chhaochharia mentioned.
UBS remains positive on consumption, industrials
Beyond financials, UBS continues to favour consumption, including staples. The brokerage described this as a more contrarian or counter-consensus call.
Industrials and power also remain on its radar, although Chhaochharia cautioned that investors need to be selective because of the sharp moves seen in the sector.
Quick commerce was also mentioned among the themes being tracked.
AI and tech: not dead, just quiet for now
On technology and IT services, Nagarajan said valuations have been kept under pressure for months by the sheer volume of AI-related headlines — the fear being that AI could disrupt the traditional IT services business model. But she pointed to early signs of improvement: recent conversations with companies in the space have been less negative than expected, and hiring numbers, while still small, are ticking up.
She also pushed back on the idea that India’s Global Capability Centres — the in-house tech and operations hubs that multinational companies run out of India — are under threat from AI. If anything, she said, these centres are becoming more central to how companies run their AI programmes, not less, which could change the narrative around jobs in the sector over the next few months.
High crude prices remain a major macro risk
The biggest near-term risk to India’s economic outlook is oil.
UBS estimates that India’s growth forecast is close to 7% with crude at $85 a barrel. If oil remains at $100 or above for a prolonged period, the impact could include at least a 30-basis point downside to growth, depending on how long prices stay elevated.
Higher crude prices could also put pressure on fiscal stability and increase the burden on the government and oil marketing companies, particularly if the higher costs are not fully passed through to consumers.
For now, $85 a barrel remains UBS’ base-case assumption.
Rupee: UBS hasn’t budged from its call
On the currency, Tanvee Gupta Jain, Chief India Economist at UBS India highlighted a bigger swing factor: a foreign exchange windfall of $135 billion, well ahead of what most economists on the street had penciled in, with FCNR(B) deposits alone contributing roughly $127 billion. That flips India’s balance of payments picture from an expected shortfall of around $90 billion to a surplus.
Despite that, UBS hasn’t changed its rupee forecast. The bank has maintained all along that the rupee would stay range-bound rather than strengthen sharply, and its year-end target remains 96 to the dollar.
Reasons include the possibility of the US Federal Reserve raising rates twice by 25 basis points each (which would support the dollar), continued volatility in oil prices, and the fact that India already has a large forward book — dollar positions the central bank has committed to for the future — of $103 billion, which limits how much the currency can move.
A busy year for IPOs — and UBS thinks that’s healthy
With a wave of new share sales hitting the market, Nagarajan said the flood of IPOs is actually a good sign rather than a warning sign. “Last year, if you see, India had 40% of the issuances among EMs, and the median returns were zero, versus 30% for the median returns elsewhere. This year, it has actually been more encouraging, so there is money on the table for post-listing gains as well.”
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