Manish Bhandari of Vallum Capital believes the recent dip in IT stocks offers a tactical opportunity as Artificial Intelligence begins to boost company earnings. He also sees long-term value in the banking sector, arguing that robust profit growth can withstand potential interest rate increases, despite current concerns regarding credit and deposit growth mismatches.
Manish Bhandari, founder of Vallum Capital, believes that the recent volatility in the IT sector has created a strategic entry point for investors. Rather than viewing the current performance as a temporary technical bounce, he suggests that Artificial Intelligence is moving past the experimental phase and is now actively contributing to the revenue of major industry players.
He points to stable deal flows and the benefits of the Indian Rupee’s movement as factors that are helping protect profit margins. Additionally, he highlights that recent changes in hiring patterns within the sector are a sign that companies are shifting back toward a growth mindset. While concerns about reducing staff numbers were prominent in the past, he expects this pressure to fade as client demand scales up.
The Banking Sector Outlook
Despite the expectation that the Reserve Bank of India may increase interest rates by another 25 to 50 basis points, the banking sector remains a focus area. A key point of discussion in the market is the gap where credit growth is currently moving faster than deposit mobilization. While this creates a liquidity challenge, Bhandari believes banks remain undervalued when looking at their overall profit growth trajectory.
He explains that for many banks, loans linked to the repo rate adjust their interest levels faster than the interest paid on customer deposits. This structural feature often acts as a short-term buffer against rate hikes. However, he warns that non-banking financial companies (NBFCs) may face more direct pressure from rising funding costs, and only those with a diverse range of funding sources are well-positioned to handle this cycle.
Market Strategy and Risks
Looking at the broader market, the recent correction in the Nifty index has brought valuations back toward their long-term averages, making them more reasonable than they were previously. Bhandari anticipates that the next five years will see a notable shift toward quality small-cap and mid-cap companies. However, he cautions that investors should remain prepared for high levels of market volatility.
Investors are also advised to exercise caution regarding the insurance sector. He suggests waiting for more clarity on the final regulatory framework, specifically regarding the proposed changes to expense limits by the Insurance Regulatory and Development Authority of India (IRDAI).
Finally, the broader economic environment remains complicated by factors such as fluctuating oil prices and inflation caused by supply-side constraints. As a result, he emphasizes that individual stock selection remains the most critical factor for performance in the current market environment.