He believes the sector is better placed after FCNR inflows addressed funding challenges, while a stable interest-rate environment could further support profitability.
Upadhyaya said the pressure on private banks over the past 12-18 months was largely due to deposit mobilisation and funding costs. He believes those issues have now eased and expects earnings momentum to improve.
“Over the next couple of quarters, you should see that happening,” he said, referring to a recovery in earnings growth for private banks.
Upadhyaya added that while banks may see temporary pressure on net interest margins (NIMs) because fresh funds cannot be deployed immediately, the outlook remains favourable as credit growth stays healthy.
“Overall earnings growth situation for private banks from here on should be lot better than what it was for the last 18-24 months.”
Kotak AMC keeps IPO selection process unchanged
Upadhyaya said Kotak Mahindra AMC does not treat initial public offerings (IPOs) differently from listed stocks while making investment decisions. The fund house evaluates every opportunity using the same framework, although IPOs require more due diligence because they often have a shorter operating history.
According to him, investments are based on three key factors—business quality, management and valuations.
“We are open to all IPOs.”
He noted that platform companies and manufacturing firms have dominated recent IPO activity and said strong capital availability in equity markets could help companies fund expansion over the next 18-24 months.
Private banks preferred over NBFCs
While the portfolio includes public sector banks, private banks and non-banking financial companies (NBFCs), Upadhyaya said valuations currently favour private lenders.
He added that Kotak AMC prefers diversified NBFCs backed by strong parent groups but believes private banks now offer a better balance between valuations and expected earnings growth.
He also expects uncertainty around leadership succession at large private banks to reduce once management announcements are made.
Cables and wires sector may avoid paint industry-style disruption
Commenting on the cables and wires industry after new competition emerged, Upadhyaya said the sector differs from the paints business because it is largely business-to-business, operates with lower gross margins and continues to grow at a faster pace.
He said competitive pressure may not lead to the same level of price-based disruption seen in paints. However, he cautioned that valuations could come under pressure if industry growth slows alongside rising competition.
According to Upadhyaya, if growth remains intact and profitability is largely unaffected, the sector should stabilise after the recent market reaction.
AI changing the IT services business model
Upadhyaya said artificial intelligence (AI) is changing the economics of the IT services industry by reducing dependence on workforce-led growth.
He expects companies to shift towards platform-driven, fixed-price and outcome-based business models instead of traditional linear expansion.
Kotak Mahindra AMC continues to remain underweight on the IT sector, citing the absence of significant changes in quarterly business performance.
Positive outlook on defence
On defence, Upadhyaya said the sector continues to benefit from India’s focus on indigenisation and export opportunities.
While he acknowledged that valuations are no longer inexpensive, he said companies can continue delivering growth if execution remains strong. However, he warned that any slowdown in growth could lead to valuation corrections.
He added that Kotak Mahindra AMC continues to follow a growth at reasonable price approach, maintaining diversification rather than taking concentrated exposure to expensive high-growth stocks.
For the full interview, watch the accompanying video
