George Thomas, Fund Manager – Equity at Quantum AMC, expects private banks and IT companies to be among the sectors that could perform well as earnings improve and market conditions normalise. While geopolitical developments and global interest rates may continue to influence markets in the near term, he remains optimistic on Indian equities over the long term.
Thomas believes margin expansion for banks, improving earnings in IT and attractive valuations in select sectors could support returns over the coming quarters. However, he is cautious on hospital stocks, citing regulatory uncertainty, capacity additions and expensive valuations.
“We are quite optimistic on the markets from a long-term perspective,” Thomas said, adding that near-term market moves would largely depend on global developments that are beyond our predictive capability at this point in time.
IT sector could surprise as AI headwinds ease
Thomas said investors have been expecting prolonged weakness in the IT services sector after several years of subdued growth, but recent earnings suggest that the outlook is improving.
He said IT companies have continued to hold up at the portfolio level, while growth has been better than many investors anticipated. As pricing pressure from automation and artificial intelligence (AI) eases, he expects demand to improve further.
“So even if we look at some of the recent earnings season, IT is holding up at portfolio level, and even the growth is better than what most investors thought,” he said.
According to Thomas, companies are also responding to higher input costs through pricing actions, which should help support earnings growth.
Global rates remain the key market risk
Thomas said the recent correction in Indian equities has been driven more by global interest rates than domestic fundamentals.
He noted that higher bond yields in developed markets make investors more cautious about allocating money to emerging markets such as India, particularly when currency risks are taken into account.
He also expects investor interest to broaden beyond a handful of AI-related stocks over time, which could benefit markets like India.
Private banks offer value
Thomas expects banks and non-banking financial companies (NBFCs) to maintain healthy operating performance, with asset quality remaining stable despite inflationary pressures.
As higher interest rates are transmitted through the system, he expects bank margins to improve, supporting earnings growth over the coming quarters.
He said some private banks are trading at decadal low valuations, creating scope for valuation normalisation and mean reversion.
Hospital stocks face regulatory and valuation risks
Thomas remains cautious on the hospital sector despite the recent correction in share prices.
He cited continued capacity additions, the possibility of further government regulation on pricing and valuations that remain unattractive from a value-investing perspective.
“We would be cautious on the sector,” Thomas said, adding that hospital stocks are not anywhere close to levels where we would want to enter.
He said Quantum AMC continues to monitor the sector but does not see a favourable risk-reward balance at current valuations.
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George Thomas sees upside in private banks and IT, warns hospital stocks face valuation risks
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