Why NBFCs and Private Banks Outshine PSU Banks, Says Aman Chowhan

As the Indian market navigates shifting macroeconomic variables, seasoned investment experts are recalibrating their sector allocations to mitigate risks. Aman Chowhan of Abakkus Asset Manager highlights a strategic preference for private lenders and NBFCs over public sector banks while warning of the looming impact of crude oil on corporate margins.

Crude Oil: The Primary Macro Risk for Corporate Earnings

While many analysts have been focused on monsoon patterns, Chowhan argues that crude oil remains the dominant variable impacting the Indian economy. He suggests that even if geopolitical tensions ease, oil prices are likely to stay elevated around the $80 mark.

The impact of these prices is expected to hit balance sheets significantly in the upcoming quarter. While the March quarter remained stable due to existing inventory, the June quarter is expected to reflect the true cost of higher oil. Chowhan estimates a potential 100–200 bps hit to earnings due to these rising energy costs. Consequently, the primary risk for companies currently lies in margin compression rather than a decline in topline demand, which remains resilient.

Financial Sector: The Preference for Private Players

Within the banking and financial services space, Chowhan maintains a constructive view on fundamentals but notes that Foreign Institutional Investor (FII) selling continues to act as a headwind for sentiment.

When narrowing down the selection within financials, he explicitly prefers Non-Banking Financial Companies (NBFCs) and private sector banks over Public Sector Undertaking (PSU) banks. This preference stems from their positioning in the current environment. Additionally, he pointed to FCNR (Foreign Currency Non-Resident) inflows as a positive driver for the Rupee, noting that attractive yields could draw meaningful foreign capital.

Sectoral Rotation: Defensive Themes and IT Caution

In response to the high-crude environment, Chowhan has shifted portfolio allocations toward structural and defensive themes. Key areas of interest include:

Conversely, he remains cautious about the IT sector. Having exited IT positions six months ago, Chowhan believes the upside is limited. He notes that while AI improves efficiency, it threatens India’s traditional low-cost labor advantage, which could keep valuation multiples under pressure.

Tactical Opportunities in Defence and Chemicals

For investors looking for tactical plays, Chowhan identifies chemicals, defence, and select engineering stocks as high-interest areas. These sectors are currently supported by favorable currency benefits and relatively comfortable valuation multiples, making them attractive entry points in the current market cycle.

Key Takeaways