Largecaps offer best risk-reward in over a decade, private banks attractive: UTI AMC

Largecap stocks are currently presenting their most favourable risk-reward profile in over a decade, driven by a combination of earnings support and compelling valuations, according to Ajay Tyagi, President and Head of Equity at UTI Asset Management Company.

The broader market has been consolidating for nearly 24 months following a period of excessive exuberance. Mid and smallcap valuations had surged post-elections in 2024 to levels unseen even during the pre-Global Financial Crisis peak of 2007. This high starting point, coupled with two years of weak earnings growth, forced a necessary pause.

That earnings trajectory is now reversing. Pent-up consumer demand is returning forcefully, supported by household savings of roughly $11 billion from income tax cuts and $21 billion to $22 billion from goods and services tax (GST) rationalisation implemented last year. This recovery makes the top tier of the market particularly appealing.

“Valuations are extremely attractive. We haven’t seen such attractive valuations for large caps, outside of COVID, in more than 10 years. Last time we would have seen this was in 2012-13,” Tyagi said.

Within the broader market, smallcaps remain expensive, warranting a highly cautious approach. Midcaps are returning to fair valuation levels following recent consolidation and a downward move over the past month, though selectivity remains crucial.

The most significant opportunity lies within large private sector banks. These institutions are targeting mid-teens credit growth of around 14% to 15%—slightly above India’s overall credit growth—alongside similar expansions in net interest margins (NIM) and profits. Despite this, they are trading at 1.5 to 2 times price-to-book multiples with return on assets between 1.5% and 2%.

Sustaining a 7% real gross domestic product (GDP) growth requires systemic credit growth of at least 12-13%, ensuring that larger banks will continue to outpace the system by a few percentage points, a trend they have maintained over the last two decades. This dynamic creates an “absolute pricing mismatch” in the sector.

The outlook for the telecom sector is also constructive. “I think for all practical purposes, this industry has been reduced to a duopoly,” Tyagi noted, adding that the remaining players possess significant pricing power. While subscriber penetration is nearing 100%, the ongoing migration from 2G to 4G and 5G networks, along with regular tweaks to prepaid and postpaid plans, will improve average revenue per user (ARPU) and flow directly to the bottom line.

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Largecap stocks offer best risk-reward in over a decade; private banks look attractive, says UTI AMC

Addressing concerns about new competition in the cables and wires space, the situation differs markedly from the recent disruption in the paints sector. The earlier slowdown in paints coincided with a broader consumption slump, compounding the impact of a new entrant. In contrast, the cables and wires industry continue to grow at a healthy double-digit rate, fueled by power sector demand, data center applications, and export opportunities. The lengthy approval process for large project supplies further insulates existing players, allowing the industry to absorb new competition much better as long as double-digit growth persists.

UTI AMC’s total assets under management (AUM) stood at $81 billion as of September 30, 2026.

Disclosure: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust that controls Network18, the parent company of CNBCTV18.com.

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