Why it's better to buy banks and not cement stocks, explains this fund manager

As economic activities rebound and lending activities pick up pace, banks are likely to witness growth in their loan portfolios. Additionally, the recent reforms and initiatives undertaken by regulatory bodies are anticipated to further strengthen the financial sector.

According to Harsha Upadhyaya, CIO-Equity at Kotak Mutual Fund, banks and financial institutions are expected to maintain their outperformance in the market. This positive sentiment is driven by various factors, such as improving asset quality, a revival in credit demand, and a favorable regulatory environment.

“As far as financials are concerned, it will be lower than what we have seen in financial year 2023 in terms of the growth numbers but it will still be better than the overall market average. So to that extent, it will continue to remain an outperformer in terms of earnings growth as well as possibly even stock performance,” he said.

Upadhyaya also highlighted the potential benefits that the cement and industrial sectors may enjoy due to lower commodity prices. As commodity prices, including raw materials and energy costs, decrease, cement and industrial companies are expected to experience improved profit margins. With increased infrastructure spending and a focus on manufacturing, these sectors are poised to benefit from the favorable commodity price environment.

“Sectors such as cement and industrials should also benefit with lower commodity prices as we go forward,” he said.

While Upadhyaya expressed optimism regarding certain sectors, he remains cautious about incremental investments in capital expenditure (capex) plays. This cautious approach is primarily driven by the current valuations in the market.