He added, “In aggregate, it improves the profitability for a lot of names, perhaps it encourages some more players to come into this space and innovate. So it’s in the right direction.”
Mehta said the impact of the UPI MDR move would depend on how it is implemented on the ground. He noted that there are concerns over how merchants may respond, including a possible shift towards cash payments or splitting transaction values. However, the move is directionally positive, with traditional banks likely to benefit more than fintech and payment companies.
On the broader market outlook, SBI Mutual Fund is currently favouring mid- and small-cap stocks over large-cap equities. Mehta said large-cap companies are delivering relatively subdued earnings growth of around 10-11%, which has reduced investor interest in the segment.
The lacklustre earnings trajectory has also contributed to outflows from largecaps among both foreign institutional investors and domestic market participants. Against this backdrop, Mehta sees relatively greater opportunities in the broader market.
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Mehta remains cautious on the information technology sector and prefers a wait-and-watch approach despite valuations appearing attractive at around 15-16 times earnings.
While some mid-cap IT companies are positioning themselves to capture rising artificial intelligence-related spending, AI revenues still account for a relatively small share of the overall revenue pool for most large IT companies. At the same time, larger IT players are facing pricing pressure, which is offsetting some of the benefits from productivity gains generated through internal AI adoption.
Mehta cautioned that lower growth could make current valuations less compelling.”If the growth kind of goes negative, and you see deflation on growth rates, and margins and profitability starts to contract, then even that 15-16 is not attractive enough,” he said.
Instead of IT, incremental capital is being directed towards pharmaceuticals and auto ancillaries. Within pharma, Mehta sees opportunities in contract development and manufacturing organisations (CDMOs), where improving growth rates are opening up new business opportunities.
Auto ancillary companies are also expanding their addressable markets by moving beyond traditional automotive applications. Their exposure to sectors such as aerospace, defence and railways is helping broaden the potential growth opportunity.
For the entire discussion, watch the accompanying video
