Private Banks Poised for Earnings Growth: Chief Investment Officer Insights

Private Banks Poised for Superior Earnings Growth, Says Systematix Group CIO

Private banks are better positioned to deliver superior earnings growth over the next 12-18 months, according to Vijay Sarda, Chief Investment Officer (CIO) at Systematix Group. Sarda attributes this advantage to private lenders' strengths in net interest margins, deposit franchise strength, technology-led efficiencies, and structural growth opportunities in retail and SME lending.

India's response to bringing Foreign Institutional Investors (FIIs) back to equities should focus on relative attractiveness through three pillars: policy predictability and structural competitiveness, macroeconomic stability through fiscal discipline, and sustained earnings visibility. Sarda advised that India should rationalize the long-term capital gains tax and securities transaction tax to align with global standards, accelerate ease of doing business reforms, and maintain a stable, growth-oriented regulatory framework.

The Indian rupee has undergone substantial depreciation in 2026, breaching record lows above 96 against the US dollar amid sustained FII outflows, elevated crude oil prices, higher gold imports on the back of risk aversion, and a firm US dollar. While the RBI's interventions have curbed disorderly movements and our reserves provide a strong buffer, declaring a definitive bottom remains premature. Persistent global headwinds, including geopolitical uncertainties and capital flow dynamics, suggest further depreciation pressure cannot be ruled out without a clear reversal in these factors.

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Sustained FII outflows, exceeding Rs 2.2 lakh crore year to date, create meaningful headwinds but do not eliminate upside entirely. Foreign flows primarily dictate the speed and breadth of rallies rather than their existence. Robust domestic institutional flows and sticky retail SIPs have absorbed selling pressure, underscoring structural resilience. However, FII liquidity remains the critical catalyst for broad-based valuation expansion, especially in large caps.

Private banks are expected to outperform PSU banks in terms of earnings growth over the next 12-18 months. Following PSU banks' strong phase of NPA clean-up and credit cost normalisation, the low-hanging fruit has largely been harvested. Private lenders now hold advantages in net interest margins, deposit franchise strength, technology-led efficiencies, and structural growth opportunities in retail and SME lending.

Geopolitical risk rarely follows a calendar, and there is a clear possibility that West Asia concerns will persist into June and beyond. Ongoing de-escalation and re-escalation cycles, especially around energy routes like the Strait of Hormuz, will keep markets defensively positioned and sensitive to headlines. We treat this as a live risk rather than a base case disruption.

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The RBI is likely to maintain status quo on the policy repo rate at its upcoming monetary policy meeting. With resilient domestic growth but inflation risks tilted upwards due to elevated energy prices, the central bank is likely to adopt a data-dependent, neutral stance. Focus will likely shift to proactive liquidity management and exchange rate stability measures rather than immediate rate changes. The outcome will hinge on incoming inflation data and global developments, particularly crude oil trajectories.