V Srivatsa, Executive Vice President and Fund Manager at UTI AMC, has laid out a clear-eyed view of where value lies in the current market — and where investors may be taking on more risk than they realise.
The macro tailwind: Crude oil is the key variable
Srivatsa points to falling crude oil prices as the single most important shift in India’s macro environment. The sharp rise in crude between March and May had rippled through the economy, widening the fiscal deficit, pressuring the current account, stoking inflation, and squeezing corporate earnings.
With prices now easing, he expects the second half of the financial year to deliver significantly better economic indicators. However, he cautions that the next two quarters will still reflect the lagged impact of elevated crude, meaning earnings downgrades of 2–3% are likely, something the street has not yet fully priced in.
Despite the near-term noise, Srivatsa sees the Nifty 50 trading at an attractive 16–17.5x on a two-year forward basis, with earnings growth pencilled in at 14–16% for FY28.
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Largecaps vs midcaps: The valuation case is clear
Midcaps are currently trading at a 30–40% premium over largecaps, one of the steepest premiums on record. While Srivatsa acknowledges that earnings growth in select midcap pockets like pharma, EMS, and power equipment is genuinely superior, he believes the valuation gap has stretched too far.
His verdict: largecaps offer more value than midcaps right now, particularly as a stable macroeconomic environment in the second half would disproportionately benefit banks — the largest contributor to Nifty EPS growth.
Private sector banks: Undervalued and underowned
Srivatsa is firmly in the private sector banks camp over PSU banks. His reasoning is straightforward, PSU banks have already significantly outperformed, and the valuation discount between the two has narrowed to its lowest level in years.
Private sector banks, by contrast, have borne the brunt of heavy FII selling over the past year, leaving them undervalued relative to long-term averages. With NIMs having bottomed out, credit growth remaining healthy, and credit costs still comfortable, he believes the risk-reward strongly favours private banks.
The FII question: When does the money come back?
Foreign institutional investors have been net sellers of Indian equities, redirecting capital toward Korea and Taiwan, the biggest beneficiaries of the global AI investment boom. Srivatsa acknowledges that FIIs have been right to chase superior earnings growth in those markets.
However, he sees signs that the AI trade may be approaching its peak. As earnings momentum slows in those markets, he expects flows to gradually rotate back toward India — though he stops short of calling a precise timeline, noting that predicting capital flows is harder than forecasting earnings.
The contrarian call: Don’t write off IT just yet
In what Srivatsa himself describes as a contrarian position, UTI AMC is maintaining its holdings in largecap IT stocks despite widespread pessimism about the sector’s long-term relevance in an AI-driven world.
His case: largecap IT names are available at 12–14x earnings with a 5–6% dividend yield, an attractive entry point for patient investors. When enterprise AI adoption picks up meaningfully, Indian IT, with its execution depth, is well-placed to capture a significant share of that opportunity.