Rupen Rajguru of Julius Baer India warns that low monsoon rainfall and rising oil prices could push up inflation. While he remains optimistic about private-sector banks due to strong credit growth, he suggests investors stay cautious on IT services, where significant growth may take one to two years to materialize.
Rupen Rajguru, Head of Equity Investments and Strategy at Julius Baer India, has highlighted concerns regarding India's macroeconomic stability as the southwest monsoon tracks 14% below normal levels. This deficit, combined with persistent global oil prices, poses a risk of an uptick in inflation. If food prices rise due to lower agricultural output and energy costs remain high, it creates a challenging environment for price control.
Despite these pressures, the Reserve Bank of India is expected to keep interest rates unchanged in the near term. The central bank is likely to focus on liquidity management tools—strategies to control the amount of cash circulating in the system—rather than moving the repo rate. With systemic liquidity currently estimated at around Rs 10 trillion, the financial system maintains a buffer that helps protect against immediate volatility.
For investors, the banking sector, particularly private-sector banks, remains a core area of focus. These institutions continue to demonstrate strong credit growth and comfortable funding profiles. Recent inflows from Foreign Currency Non-Resident (FCNR-B) deposits have also provided support, helping to lower short-term money market rates. This reduction in the cost of funds is gradually being passed on, with some major private banks already lowering their Marginal Cost of Funds-based Lending Rate (MCLR), which helps sustain demand for loans.
In contrast, the outlook for the IT services sector remains cautious. While the industry is actively integrating artificial intelligence, productivity gains from these technologies have not yet been sufficient to overcome pricing pressures and stiff competition. For investors considering entry points into the IT sector, the timeline for a durable growth recovery is projected to be 12 to 24 months away.
Investors monitoring these trends should look for updates on food inflation data and trends in global crude oil prices, as these factors will influence the central bank's future stance. Furthermore, tracking whether private banks can maintain their lending margins and credit growth in the coming quarters will be essential for assessing the health of the financial sector.