Expert view: AshwiniShami, President and Chief Portfolio Manager, OmniScience Capital, believes an India-US trade deal and improved FII (foreign institutional investors) inflows will help the Indian stock market deliver healthy returns in the second half of the current financial year (H2FY26). In an interview with Mint, OmniScience Capital’s Chief Portfolio Manager stated that he finds public sector banks (PSBs) more attractive and is positive on the financial, railway, defence, and power sectors. Here are edited excerpts of the interview:
Should we expect the Indian stock market to perform better in H2FY26?
On a one-year basis, we have seen significant volatility — a nearly 20 per cent correction followed by a recovery in H1.
The broader market has remained flat over the past year. Since the beginning of this year, large caps have outperformed mid- and small-cap stocks due to the widening valuation spread.
We expect this trend to continue in the second half of the financial year, as large caps remain significantly better valued.
If clarity emerges on the trade deal and FII inflows improve, we can expect the second half of the year to deliver a better performance.
What are the key risks for the market at this juncture?
Tariff-triggered inflation spikes in the US could prompt the Fed to raise interest rates, leading to further FII outflows and a negative impact on the US economy.
While this may affect export-oriented sectors more, it could also cause market-wide volatility in the short term.
On the domestic front, we see limited risks, given the recent fiscal and monetary initiatives aimed at supporting growth.
How do you see the valuation of mid and small-cap segments? Is it time to stay clear of them?
We identify meaningful pockets of mispriced stocks in both the mid- and small-cap spaces, particularly in sectors such as banking, housing finance, energy transition, and engineering.
However, the index-level earnings multiples remain above 30 for both mid- and small-cap companies; a selective, bottom-up approach is necessary.
Index portfolios or portfolios focused on larger, well-recognised mid and small-cap names may not outperform large caps going forward.
What should be our short-term equity investment strategy at this juncture?
We generally do not recommend investing in equities with a short-term horizon, especially if one is seeking to generate significant alpha.
Ideally, equity investments should have a minimum horizon of three to five years.
However, in the near term, we expect fund flows to improve towards large caps —particularly in the banking, power sector, and select infrastructure plays.
Do you see value in the IT sector? What is the outlook for the segment?
Valuations in the IT sector have corrected significantly — from a P/E multiple of nearly 35 times at the beginning of the year to around 25 times currently.
However, the growth outlook remains uncertain. On one hand, there are concerns about a slowdown in the US market; on the other hand, challenges related to AI-led disruptions are forcing IT firms to reinvent their business models. As a result, a cautious stance on the sector is warranted.
What is your outlook for the banking sector? Do you think PSU banks are better placed than their private peers?
On a valuation basis, public sector banks (PSBs) appear more attractive.
While the projected growth for PSBs is in the low double digits compared to mid-double digits for private sector banks, the median gross and net NPAs are similar for both groups.
However, PSBs are trading at a median P/E of nearly 8 times versus nearly 15 times for private banks.
Clearly, from both a fundamental and valuation perspective, PSBs offer a better investment opportunity at this point.
Which sectors are you positive about for the next one to two years?
From a growth perspective, we are positive on the railway infrastructure and defence sectors.
However, many pure-play names in these areas are significantly overvalued, so a curated approach is essential to gain exposure to these growth vectors while maintaining valuation discipline.
Overall, we see even better opportunities in financial services — including banks and housing finance companies — and the power sector, where both growth prospects and valuations are favourable.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
