Daily Voice: Shriram Life CIO expects 50 bps RBI rate hike by December; sees IT as a contrarian bet

As per the latest business developments, Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance, anticipates the RBI to begin its rate-hiking cycle at its October policy meeting with a 25-basis-point hike, followed by another 25-basis-point gain in December.

After that, the central bank may shift to a wait-and-watch mode to assess the impact of the rate hikes before deciding on its next course of action, he stated in an interview with Moneycontrol.

Banerjee believes IT is increasingly becoming an interesting contrarian area to monitor following the substantial correction.

The key question, he stated, is not whether to prefer large-cap or mid-cap IT firms, but which firms can turn AI from a threat to their legacy topline models into an opportunity for incremental revenues, productivity upside and, ultimately, stronger earnings expansion.

Do you think market consolidation is the most likely scenario for at least the next six months, given the overseas risks?

Consolidation stays a reasonable base case in the near term, although we would distinguish between consolidation in the index and the opportunities available underneath it. Global risks stay elevated as oil, geopolitical uncertainty, high global bond yields and foreign flows are all creating headwinds for India. Brent remaining around $100 a barrel and US Treasury yields staying elevated are particularly relevant for an oil-importing economy such as India.

At the same time, the correction has made Indian equity valuations considerably more reasonable than they were earlier. From here, earnings rather than further valuation expansion will need to become the principal driver of returns. If earnings expansion accelerates over the next few quarters, the market could gradually move out of this consolidation phase. So, while the index may stay range-bound and volatile for some time, we keep see opportunities at the sector and stock level.

Do you see significant opportunities in the healthcare, capital markets and industrials sectors?

Yes, we are broadly in alignment with the above. That stated, we would be selective rather than take a blanket sectoral view. Healthcare stays interesting because of its relatively defensive earnings characteristics alongside structural opportunities in domestic healthcare, specialty products and select export businesses.

Industrials keep benefit from the broader domestic capex, infrastructure, defence, manufacturing and indigenisation cycle, although valuations make stock selection increasingly important.

Capital-market businesses stay an attractive structural theme because the financialisation of household savings is still a long-term opportunity. That stated, this is additionally a segment where earnings can be highly sensitive to market activity, regulation and transaction volumes. As a result, after the firm expansion of recent years, the quality and diversification of the business model becomes as important as the underlying theme itself.

Do you believe digital platforms that distribute financial products are among the best places to be?

Digital financial distribution stays a powerful long-term structural opportunity, but the recent developments additionally demonstrate why the business model needs to be evaluated carefully. India has a long runway for financialisation and platforms that can acquire customers efficiently and cross-sell multiple financial products can potentially create significant operating leverage.

At the same time, we have to be additionally mindful of the fact that the entire gamut of financial services which includes Banks, NBFCs, Insurance, Capital Markets, Mutual Funds, Alternate asset classes are going through large scale transition and regulatory changes which can materially alter the economics of individual products.

The recent IRDAI proposals on insurance commissions is a good example. As a result, we would differentiate between platforms based on diversification of revenues, unit economics and dependence on any single commission pool. While the theme stays attractive, we should focus on firms whose business models which are robust enough to withstand through regulatory changes and market cycles and technological disruptions.

Are energy and indigenisation emerging as major themes driving India's expansion?

As India is marching ahead towards its goal of transitioning itself into Viksit Bharat by 2047, its aim isn’t pivoted around focusing primarily on developing artificial intelligence and its related infrastructure development. On the contrary, India wants to drive its economic expansion powered by its massive capex cycle revolving on developing both conventional and non-conventional energy sector, large scale electrification, developing self-reliance on critical rare earth minerals and reduce excess reliance on imported energy needs, indigenization of critical industries like defence, shipbuilding, fertilisers, chemicals etc.

Indigenisation is certainly becoming an increasingly important structural theme across manufacturing, defence, electronics, capital goods and several industrial supply chains. The opportunity is not merely import substitution, but, over time, the larger opportunity is for Indian firms to develop scale and become competitive participants in global supply chains.

Energy is equally important, although we see it as a much broader theme including renewables, transmission, storage, conventional energy and the infrastructure required to backing India's growing power demand. Recent geopolitical events and elevated crude prices have reinforced the strategic importance of reducing external energy vulnerability.

Together, energy security and manufacturing indigenisation could stay important investment themes over a multi-year period rather than simply being cyclical trades.

Do you expect the RBI to hold interest rates at its October meeting and raise the repo rate at its December meeting?

Continued escalation in the US-Iran conflict accompanied with supply disruption has pushed crude prices again around $100 a barrel and hovering there on a consistent basis leading to inflation risks becoming broad based in nature. CPI numbers additionally edged elevated to 4.82 percent in August 2026 and WPI stays at 9.92 percent as per last available number which indicates chances of retail inflation spiking further.

As a result in a situation where GROSS DOMESTIC PRODUCT Expansion is firm at 7.82 percent in Q1FY27 and broadening, inflation climbing and gaining breadth, and the global backdrop looks too risky by each passing day to run a narrowing interest rate spread the need to wait for RBI MPC to wait for further clarity on global front declines.

As a result, we expect RBI to start its rate hiking cycle in Oct’26 policy with 25 bps hike and perhaps follow it up with one more in Dec’26 policy and then stay in a wait and watch mode to see the impact of the rate hikes and perhaps take decision on the next course of action.

Is the insurance space looking attractive after the recent correction?

Shares of insurance firms saw a broad-based selling on last Thursday i.e. 24 after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to insurance distribution, commission and expense of management structures. After announcement of these draft commission and EOM regulation the listed insurance firms both in non-life and life segment have corrected and their degree of correction has varied depending on their scale, distribution set up and extent of expense of management remediation to be done w.r.t. the draft regulation.

That stated, these regulations once implemented after proper deliberations are anticipated to improve the insurance penetration, drive insurance volume due to improvement in affordability. For insurers themselves, the longer-term structural opportunity stays intact.

India keeps have significant scope for elevated insurance penetration and protection coverage. The correction as a result creates opportunities for selective evaluation, but the focus should be on firms with firm franchises, diversified distribution, healthy persistency and the ability to protect margins under a changing regulatory framework rather than simply buying the sector because prices have fallen.

Do you think large-cap IT is less attractive because of muted expansion, while mid-cap IT firms could be worth watching for the impact of AI-related opportunities?

We would be wary around making the distinction purely on market capitalisation. Large-cap IT has faced muted discretionary spending and is additionally having to adapt its traditional effort-based business model to an environment where AI can deliver significant productivity improvements. That transition is a challenge, but the roadmap is considerably clearer today than it was a year ago. Indian IT firms are increasingly adapting through AI-led offerings, outcome-based pricing and ancillary services rather than simply relying on the traditional model.

Mid-cap IT can offer elevated expansion where firms operate in specialised verticals or capture new AI-led programmes, but that can come with greater client-concentration and execution risk. For us, IT is increasingly an interesting contrarian area to monitor after the substantial correction. The key question is not large-cap versus mid-cap, it is which firms can convert AI from a threat to the legacy topline model into incremental revenues, productivity upside and ultimately stronger earnings expansion.