Axis MF's Shreyash Devalkar backs financials, says IT remains a trade despite correction

Financial services continue to offer one of the strongest investment opportunities in the Indian market, supported by favourable valuations, healthy asset quality and improving credit growth, according to Shreyash Devalkar, Head of Equity at Axis Mutual Fund, which managed $39.34 billion in assets during the April-June 2026 quarter.

Devalkar said the fund house remains constructive on lenders even as it evaluates company-specific developments across the banking sector. He also expects manufacturing-related themes to stay in focus, while maintaining that the information technology sector is still better suited for tactical trades than long-term investments because earnings growth remains weak.

"If you look at the sector as such, the valuations are really in favour. Secondly, asset quality is actually across the board... good. And thirdly, the credit growth is improving," Devalkar said, explaining the fund house's positive view on lenders.

Asked about the leadership transition at HDFC Bank, Devalkar declined to comment on the lender specifically but outlined the framework Axis Mutual Fund follows when evaluating companies undergoing management changes.

He said investors should assess whether management risks are already reflected in stock prices, examine the depth of the management team and compare valuations with industry peers before taking an investment view.

On the insurance sector, where Axis Mutual Fund has been underweight, Devalkar said recent regulatory developments have prompted a fresh review of opportunities, although it is too early to draw conclusions.

"It was just a few days... it's too early to conclude," he said. "We would evaluate for some more time, let the results pass, and then we will actively look at it."

Devalkar maintained his cautious stance on the IT sector despite the recent correction in technology stocks. He said slowing revenue growth remains the biggest concern, with artificial intelligence adding another layer of uncertainty.

"If the growth rates are going to be sub-5% or around 5%, then it's only about whether it is in price or not," he said. "I would look at it from a broader trade point of view, rather than the investment at this point in time."

Instead, Axis Mutual Fund continues to favour manufacturing-linked themes such as power equipment, capital goods, electronic manufacturing services (EMS), auto ancillaries and contract development and manufacturing (CDMO) companies. While acknowledging that valuations across these segments are elevated, Devalkar said the portfolio is diversified across multiple manufacturing themes to reduce concentration risk.

He added that the fund also balances these holdings with financial services and platform businesses where earnings growth can outpace revenue growth through operating leverage.

On the macroeconomic front, Devalkar said risks have increased because of higher crude oil and commodity prices, as well as elevated global bond yields.

He noted that rising raw material costs could pressure corporate margins and inflation, while higher developed-market bond yields could weigh on capital flows into emerging markets. Although equity valuations have remained resilient so far, he said investors should remain mindful of these risks and manage portfolios accordingly.

For the full interview, watch the accompanying video

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