M&G Investments stays underweight IT, consumer staples; favours healthcare, manufacturing

M&G Investments continues to remain cautious on Indian IT services and consumer staples, even after the recent correction in valuations. Deepika Mundra, Director of Equity Research-India at M&G Investments, says the earnings outlook for IT does not appear as strong as it was in the past, while changing distribution channels are creating more competition for consumer companies.

“IT multiples have corrected, but do we see the same earnings power as we have seen in the past? We don't think so. I don't think we're there yet,” Mundra said.

She also sees limited near-term opportunities in consumer staples as quick commerce, direct-to-consumer brands and private labels have increased competition. “You can't have both growth as well as increasing margins,” she said, adding that M&G remains underweight on the sector.

In contrast, healthcare services are a significant overweight for M&G. Mundra sees opportunities across hospitals, diagnostics, dialysis companies and contract development and manufacturing organisations (CDMOs), where she expects earnings potential to remain strong over the medium term.

Precision manufacturing, aerospace and auto components are other areas that M&G finds attractive. Mundra said the fund has added exposure to precision manufacturing, industrial companies, electrical components and auto components during the past couple of quarters, particularly after some stocks corrected on margin concerns.

“We always say that volatility is our friend, and velocity is a more difficult challenge to handle, particularly in the India market,” Mundra said.

She acknowledged that valuations in these themes have risen sharply, making fresh entries more difficult. However, she believes the opportunity remains large because the end markets are diversified and there are several companies that can benefit from new supply chains moving to India.

Within auto components, M&G is particularly focused on companies with their own intellectual property rather than businesses that are primarily metal processors. Mundra pointed to areas such as unique suspension technology and electronic control units (ECUs) as examples.

The fund also continues to prefer private-sector banks, supported by valuation comfort and healthy credit growth. However, Mundra said the weight of private banks in the portfolio is lower than it was five years ago because India's expanding market and the rise in IPOs have created a much wider opportunity set for active investors.

“Your portfolio no longer looks like the old banks, IT, and consumer that it used to five years back,” she said.

On foreign investor interest, Mundra said M&G's India-dedicated strategies have remained consistent in terms of assets under management and have not been sellers in the Indian market over the past couple of years. She added that allocations towards India from its broader strategies also increased somewhat during the last quarter.

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Meanwhile, the April-June quarter of 2026 (Q1FY27) earnings have provided some support to the market view. Mundra said the quarter turned out slightly better than expected, with commercial vehicle demand and credit growth among the encouraging indicators. Large-, mid- and small-cap earnings were also slightly ahead of expectations on balance.

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