Daily Voice: Does risk-reward remain attractive in private banks? Rupen Rajguru of Julius Baer says weak…

Reports coming in for today mention that If both a weak monsoon and elevated crude prices persist simultaneously, the probability of inflation surprising on the upside increases significantly, stated Rupen Rajguru, Head of Equity Investments and Strategy at Julius Baer India, in an interview with Moneycontrol.

He believes the RBI will maintain a hold at its upcoming policy meeting, subject to the US The US central bank’s interest rate decision. While a weak monsoon and elevated crude prices could potentially propel inflation elevated, he anticipates the RBI to view any resulting supply-side food inflation as transitory.

Rajguru keeps maintain a positive stance on the BFSI sector, particularly private-sector banks, where the risk-reward stays attractive.

Recent credit expansion trends have been encouraging, and with ample liquidity in the system, he believes loan expansion should stay healthy. He additionally anticipates earnings to stay healthy, benefiting both banks and well-positioned NBFCs.

Following the robust FCNR inflows, do you expect NBFCs to get access to cheaper funding and backing the overall lending system?

We believe that the robust FCNR-B inflows are likely to improve funding conditions for NBFCs. The Indian banking system is at present operating with surplus liquidity of around Rs 10 trillion (lakh crore), which should backing a gradual slide in funding costs. Improved liquidity reduces banks' dependence on high-cost bulk deposits and has already started reflecting in softer short-term money market rates.

Some early signs of monetary transmission are visible – the largest private sector bank has reduced its MCLR by 5-10 bps across tenures. While the pass-through to NBFC funding costs typically occurs with a lag, softer money market rates and easing bank funding costs should improve NBFCs' access to funding and backing overall credit expansion. As a result, directionally, NBFCs are likely to benefit from cheaper funding over time.

When do you see an opportunity emerging to buy into the Indian IT services sector?

We would see an opportunity in Indian IT services when expansion, rather than valuation backing, becomes the dominant narrative. While concerns around the sector's long-term relevance have eased, pricing pressure, AI-led productivity upside and competitive intensity keep cap the topline expansion.

With a large share of incremental technology spending flowing to software, cloud and AI platforms, services expansion is likely to stay subdued near term. A more durable opportunity emerges once AI-fuelled demand begins to outpace these headwinds, which we believe is still one or two years away. Until then, incumbent IT services stocks are likely to oscillate within a valuation range of 14-15x on the downside and 18-19x on the upside.

Could inflation surprise on the upside due to a weaker monsoon and elevated crude prices?

Yes, the monsoon deficit in South India stays a key concern. The southwest monsoon was 14% below normal as of September 7, and the IMD anticipates these conditions to persist throughout the month. Kharif crops are already witnessing some impact due to the below-normal monsoon.

We believe crude prices could act as a swing factor in this context. If both a weak monsoon and elevated crude prices persist simultaneously, the probability of inflation surprising on the upside increases significantly.

Do you see any possibility of an RBI interest-rate gain at the October policy meeting?

We believe the RBI will maintain a hold in its upcoming policy meeting, subject to the US The US central bank's interest rate decision. While a weak monsoon and elevated crude prices could potentially lead to elevated inflation, we expect the RBI to view any resulting supply-side food inflation as transitory.

Consequently, it is likely to rely on liquidity management tools rather than the repo rate to mitigate the impact of elevated inflation.

Do you expect the flood of IPOs in India to continue?

We expect IPO activity in India to stay firm, supported by healthy domestic liquidity, a deep pipeline of issuers and continued exit opportunities for private equity and venture capital market participants. That stated, sustained IPO momentum will ultimately depend on secondary market performance and earnings delivery.

Overall, we expect the market to be more discerning, favouring firms that offer stronger expansion, profitability and governance credentials.

Is this the time to take a closer look at banks and NBFCs following the recent surge in FCNR(B) inflows?

Yes, we keep maintain a positive stance on the BFSI sector, particularly private sector banks, where the risk-reward stays attractive. Recent credit expansion trends have been encouraging, and with ample liquidity available in the system, we believe loan expansion should stay healthy.

The surge in FCNR(B) inflows has further strengthened systemic liquidity, supporting funding conditions across the financial sector. While NIMs may face some pressure as lending yields gradually soften, softer funding costs and sustained credit expansion should help offset the impact. Overall, we expect earnings to stay healthy, benefiting both banks and well-positioned NBFCs.

Do you think Indian bourses are a structural expansion story and will keep perform well?

Yes, penetration marks stay low relative to the US and China. India is witnessing a firm shift towards financialisation of saving. Hence, from a longer-term perspective, we see it to be a good structural story. That stated, we expect earnings to be cyclical in the short term due to regulations and market conditions.

When do you expect Indian equity markets to return to record-high marks, and what could be the key drivers of such a recovery?

While the exact timing of a return to record highs is difficult to predict, we believe the building blocks for a sustained market recovery are increasingly in place. Domestic fundamentals keep strengthen, with credit expansion, auto sales and power demand exceeding expectations, alongside signs of a broad-based earnings recovery.

Improving foreign investor participation, a resilient macro backdrop reflected in 7.8% Q1FY27 GROSS DOMESTIC PRODUCT expansion, firm forex reserves, and a stable INR, further reinforce the outlook. Combined with reasonable valuations of around 17x FY2028E Nifty earnings, these factors position Indian equities favourably to retest and potentially surpass previous highs over the medium term.