Expert opinion: Pankaj Pandey of ICICI Securities on valuations, earnings recovery, and the best IT, banking, and defense stocks

Expert opinion March 31: Pankaj Pandey of ICICI Securities on valuations, earnings recovery, and the best IT, banking, and defense stocks

By FY26, Pankaj Pandey of ICICI Securities predicts that India Inc.’s earnings would have recovered. He points out that long-term investment opportunities are now available due to improving market valuations. In the midst of a tumultuous market, Pandey identifies the best stocks in the banking, defense, and IT industries.

 

Professional opinions regarding the Indian stock market: According to ICICI Securities head of research,Pankaj Pandey,India Inc.s earnings should begin to improve in the first or second quarter of the upcoming fiscal year (FY26). He went on to say that since the correction,valuations have stabilized and offer profitable prospects for generating long-term wealth. Pandey also discussed his top selections for stocks in the banking, defense, and IT sectors in an interview with Mint. Here are some edited interview excerpts.

 

In what way would you rate the performance of the market in FY25? Were there any significant letdowns or did it live up to expectations?

Domestic stocks saw a wild ride in FY25, reaching record highs of 26,277 in September 2024 before regaining much of their gains and finishing the year with 5% returns.

Geopolitical tensions, elections in key economies (such as India, the United States, the United Kingdom, and Japan), and worries about the impact of US tariffs were some of the many events that contributed to the index’s volatility.

The main disappointment on the home front was the slight increase in capital expenditures, which was a result of the elections, together with some indications of a slowdown in consumption.

What important indicators of market trends should investors keep an eye on in the upcoming year?
With lowered prospects for global growth and tariff-led uncertainties in the US, CY25 is a time of imminent instability.

Since China and the US are enforcing tariffs on one another, it is too soon to tell if the worry over tariffs is over. The ramifications from this trade war may have negative effects on inflation and global GDP as a whole.

While some export markets may experience difficulties, economic growth at home is mainly unaffected by tariff rants. However, given the tax savings, we anticipate a significant boost in consumption and capital expenditures to drive overall growth in FY26.

Also Read : Is the Indian stock market closed on March 31 or April 1 in observance of Eid-ul-Fitr?

 

When do you think India Inc. will experience a significant turnaround in earnings? Is it more likely to happen in Q1FY26 or will it happen in Q4FY25?

We anticipate that corporate earnings will return to a double-digit earnings trend beginning in FY26E,now that the election-related uncertainty has passed and a growth-oriented Union Budget has been implemented.

Although it’s not a crucial statistic to monitor,the earnings rebound may occur in Q1 or Q2. We think that after the crisis,valuations have stabilized,and the current market offers incredibly profitable prospects for building long-term wealth.

The domestic and international interest rate cycle has begun its downward trend,which is encouraging and should help sustain equities prices in the future.

How do you feel about the Indian IT industry? Which equities are particularly good investments, and how can investors position themselves?
Despite modest improvement in Q2 performance and FY25 forecast, the Indian IT sector is still under pressure because discretionary expenditure is still low.

Given the US economic slump and the uncertainty surrounding rate cuts, which could affect IT budgets, a delayed rebound in growth is anticipated.

Furthermore, although the direct effects on Indian IT companies should be minimal, certain austerity measures under Trump’s administration, such as budget reductions by Elon Musk’s Department of Government Efficiency (DOGE), may present dangers.

In the future, cost-focused transactions might increase as long as macro issues continue. Given the difficulties facing US economic growth, we think that the growth rebound for the Indian IT sector would probably be postponed until FY26.

In light of this, we like Infosys, Persistent Systems, and Coforge because to their robust transaction pipelines and strength in digital and cloud services.

Do you think the next round of the market rally will be led by the banking industry? Which stocks have the finest prospects, in your opinion?
Because of their favorable valuations and stable business fundamentals, banks and NBFCs appear to be in a good position to generate relative outperformance.

The central bank’s cash infusion is anticipated to bring deposit inflows, stabilizing NIMs (net interest margins) during the next two quarters, even if margins will be under pressure as we go in the next fiscal year.

 

 

It is anticipated that a relaxation of the new tax regime and a lowering in the risk weight for exposure to NBFCs will slow the momentum of loan growth.

On the other hand, asset quality is generally anticipated to be stable, with the exception of a small number of unsecured retail lending pockets. Furthermore, valuations that are currently below the long-term average give us hope and reassurance for the industry.

We like big lenders with a track record of responsible underwriting in the industry,a diversified asset mix, and a solid franchise of liabilities. Therefore,Kotak Mahindra Bank,Axis Bank,and HDFC Bank are our choices.

Are PSU,defense,and railroad stocks still poised for significant growth? Which names seem the most promising to you?
In light of the government’s ambitions to acquire equipment in the coming years, we continue to be constructive in the defense industry. Following a slow nine months of FY25 ordering activity, the government’s continued effort on expediting and streamlining the procurement process has resulted in a significant increase in contract awarding activity over the past two to three months.

The government has issued numerous orders totaling about ₹54,000 crore in the past month.

Compared to companies with lumpiness in orders and growth prospects, we choose companies with a more structural growth path (seen in order inflows, stronger margins, and robust working capital) when it comes to stocks.

We prefer Astra Microwave Products, BEL, and HAL in the defense industry.

 

Disclaimer:

The sole intention of this story is education. The opinions and suggestions shown above are those of specific analysts or broking firms. Since situations can change and market conditions can change quickly, we suggest clients to consult with qualified specialists before making any investment decisions.