He points to the upcoming pay commission announcement as a catalyst for consumption over the next three to six months. He compares its potential impact to last year’s goods and services tax (GST) cuts, which lifted consumption stocks within three to five months of implementation.
“I think the India-specific negatives are broadly behind us, which is why you are seeing broad-based trends across mid and small caps,” Bhattacharya said.
Bhattacharya expects credit growth in the banking system to rise from 10-12% last year to 18-20%, a shift he says is not yet priced into midcap private sector bank stocks. He also flags consumer discretionary sectors – autos, hotels and mass retail – as areas for pickup in the back half of the year.
Banks and consumption
Bhattacharya named midcap private sector banks and consumer discretionary as the two segments he expects to outperform going forward. He said this applies to both new-age consumers and traditional retail spending, provided the exposure runs through consumer distribution.
He pushed back on the idea that the trade is crowded in banking sector. Regional banks affected by an unspecified investigation conflict two to three months ago now trade near 1.2 times price to book, still below what he considers fair value given the credit growth outlook.
A neutral stance on IT
Bhattacharya holds a neutral view on IT stocks. He separates the sector into two components — price-to-earnings multiples and earnings growth.
He said multiples have bottomed, but earnings need two to three more quarters to recover. Share price reactions to recent results, even weak ones, support this view.
“If you look at the share price reaction to even worse results, that tells you that valuation-wise we are there or thereabouts,” he said.
Discretionary spending: Autos, luxury, hotels
Bhattacharya remains positive on autos despite a higher year-ago base that could slow growth rates. He expects growth to surprise on the upside regardless.
He also named hotels and mass retail as segments set to pick up in the back half of the year, alongside high-end and luxury consumption, which he said has already been steady. Segments tied to pay commission-driven demand, including luggage, are also on his list.
Exchanges: A ‘well discovered’ theme
Bhattacharya said the theme on listed exchanges – BSE, the upcoming NSE listing and MCX – has already played out for investors. He expects these stocks to compound from current levels rather than see further re-rating.
Within financials, he pointed to capital markets and wealth management stocks as offering value after price declines tied to personnel departures in some companies.
Auto ancillaries: A top overweight
Bhattacharya called auto ancillaries one of his largest overweight positions across funds, citing improved export competitiveness from currency depreciation.
He pointed to companies diversifying beyond autos into semiconductors, aerospace and defence exports – without naming specific stocks – as positioned for gains over the next two to three years.
For the full interview, watch the accompanying video
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