He also flagged a possible rotation between technology stocks and power-sector names over the next 18 months, depending on how artificial intelligence (AI) valuations move in the West.
Bhatia named Hyundai Motor India and Ashok Leyland as his top picks in the auto sector, citing new model launches and consumption growth ahead of the pay commission payout. He said private banks such as ICICI Bank and State Bank of India (SBI) also look attractive after this quarter’s sell-off, and that Shriram Transport Finance Company (STFC) has bottomed out for investors looking for value.
Earnings beat expectations across market caps
Bhatia said April-June 2026 quarter’s results were stronger than expected for both large-cap and small-cap companies, correcting what he called a broader overvaluation in the market. He pointed out that small-cap stocks tend to move quickly because their shareholding is limited, which explains the sharp rally in that segment.
He also noted a shift among large foreign institutional investors (FIIs), who have traditionally stuck to large-cap names. “We see a wider range name of list of stocks getting traded by traditional long-only FIIs’ large holders,” Bhatia said. He credited this to two factors: the expansion of the Indian economy, which has pushed mid-cap and small-cap companies into higher market-cap brackets, and an improvement in corporate governance among smaller firms. Bhatia rated Indian corporate governance at the top of the Asian region.
Autos and private banks among top picks
Bhatia favours autos despite a possible near-term dip because he said festive-season numbers in September and October — affected by the Pitru Paksha and Shraadh period — could look soft, but the picture changes once the pay commission payout comes through, boosting discretionary spending on vehicles.
Bhatia said private banks’ underperformance this quarter reflects over-ownership rather than weak fundamentals — FIIs have long held large positions in these stocks, which also make up a big share of total market capitalisation. He expects share prices to eventually confirm that the segment, including STFC, has bottomed out.
Asked about the Reserve Bank of India‘s (RBI) draft circular on flexi loans, following a sell-off in Bajaj Finance shares, Bhatia declined to comment directly on the draft but said the lending system remains healthy. “I think the system is still very strong, so the RBI is being very prudent,” he said, adding that he does not see an issue among large listed lenders.
Watching consumer staples and the AI trade
Bhatia also named Divi’s Laboratories among his preferred picks, citing its position in the peptides business, though he noted the company’s management is difficult to access for investors.
He said consumer staples results have been mixed this quarter. ITC has come under pressure, while Nestle has performed well. Bhatia said the sector needs to be watched over the next 12 months for signs of a broader recovery.
Bhatia said the technology sector has been hit over the past two years by the shift in investor attention toward AI-linked companies, mostly in the United States. He said India is viewed globally as a play against the AI trade, meaning Indian IT stocks could benefit if AI-related valuations in Western markets decline. He called this the key factor to watch over the next 18 months.
Power and data center stocks: Proceed with caution
Bhatia said Macquarie continues to hold a positive view on power transmission and data-centre related stocks, which have delivered strong returns on the back of capital expenditure plans. “We definitely continue to like these names,” he said, while cautioning that a correction in AI-linked stocks in the US could also hit Indian power and equipment names tied to the same theme.
He said that holding both technology and power-sector stocks as a hedge – since the two tend to move in opposite directions depending on the AI trade – makes sense for existing investors, but added that each position needs closer monitoring than in the past two years.
For the full interview, watch the accompanying video
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