Private banks near bottom, midcaps remain attractive: HSBC MF's Venugopal Manghat

Private sector banks are nearing the end of a prolonged weak phase and could see an improvement as liquidity strengthens and credit demand picks up, according to Venugopal Manghat, Chief Investment Officer – Equities at HSBC Mutual Fund, which manages funds worth over $15 billion.

He also remains constructive on the medium-term to long-term outlook for midcap and smallcap stocks, while cautioning that some industrial and defence names have already priced in future growth.

Manghat said private sector banks are benefiting from improving fundamentals, including stronger FCNR(B) deposit inflows, ample liquidity and a recovery in loan demand. He expects these factors, along with attractive valuations, to support the sector after a difficult period.

"I would say that we are close to the bottom in terms of most private sector banks, and they look quite attractive to me," Manghat said. He added that the sector could see an improving trend after the second quarter even if margins come under some pressure in the near term.

Despite turning positive on banks, Manghat continues to favour the broader market over the long term. He said the current environment remains supportive for smaller companies due to healthy liquidity, benign leverage levels and opportunities in both domestic and export markets.

"It is a very conducive environment for smaller companies to grow and perform," he said, adding that India’s expanding economy should create more opportunities for emerging sectors and businesses.

Manghat said manufacturing, capital expenditure, consumer discretionary, healthcare and financials remain among the key themes driving the market. He described the current market as a bottom-up stock picker's market, where stock selection is likely to matter more than sector allocation.

At the same time, he warned investors against chasing expensive pockets of the market. According to Manghat, industrial stocks, defence companies and select midcap names have already discounted 18 to 24 months of future growth.

"I don't think investors should chase stocks where visibility of growth is there," he said, recommending that investors use market corrections to build positions instead of buying after sharp rallies.

Manghat said HSBC Mutual Fund remains positive on non-lending financial businesses, including asset managers, wealth managers, exchanges, depositories and registrar and transfer agents. While trading volumes may remain under pressure in the near term, he expects rising financial savings and increasing participation in investment products to support the infrastructure sector over the medium to long term.

Commenting on the recently launched NSE IPO, Manghat said the fund's participation was opportunistic rather than a broader increase in exposure to exchange businesses.

For the full interview, watch the accompanying video

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