Why Motilal Oswal AMC is doubling down on big banks as margins improve

Motilal Oswal Asset Management Company is taking a decisive overweight in large private banks and is betting on improving net interest margins, lower credit costs and robust credit growth. Executive Director and CBO Akhil Chaturvedi believes that after years of underperformance, the industry is poised to outperform as balance sheets strengthen and earnings momentum increases.

Edited excerpts from a chat:

Given the current valuation environment in large caps, how do you strike the balance between quality names and growth opportunities in your large cap fund? How attractive are large cap valuations now after a year of consolidation?Broadly speaking, we don’t allocate base market caps, but more top-down growth themes and underlying growth led to bottom-up stock selection. But we continue to recommend that our partners and investors balance their portfolios in large caps or flexicap funds.

Which sectors or business models in the large cap universe do you prioritize and which do you avoid or underweight?

We are overweight the large BFSI sector by over 30%, followed by IT, Petroleum, Construction, Telecom and Auto. These are based on the belief in strong earnings growth in the coming quarters and are available at reasonable valuations. Our portfolio was quite broad based on sectoral allocations across and diversification into good companies across different themes. We have also mixed the portfolio with highly selected mid and small caps in sectors such as real estate, consumer, household services and IT hardware.

How do you adjust your portfolio after the second quarter earnings season? Which sectors appear best positioned for high earnings growth in CY2026?

We have not made any substantive changes based on last quarter’s earnings, but with better earnings growth and improving margins and with a reasonable valuation, banking has been relatively higher. We included insurance companies and asset managers and extracted some mid-cap IT names.

Financials comprise approximately 1/3rd of your portfolio. What is behind this major obesity policy?

Large banks have been underperforming the broader markets for a number of years, with better performance from several banks and guidance on improving NIMs, lower credit costs and an expected rebound in credit growth. Our belief is that this sector can perform better in the coming quarters.

Which of the large private banks, small private banks and PSU banks do you think will perform better in 2026?

We are overweight large private sector banks, within which we have one large PSU bank. We also have an overweight in financial services in several NBFCs.

Where do you see the thematic opportunities for the next twelve to eighteen months (e.g. consumption, financial services, infrastructure, data centers)?

We have identified several themes that have the potential to drive higher growth over the next 24 months. ‘Manufacturing’ is one big theme where the government’s focus is on Make in India in combination with China + 1 story and tax reforms in the business community clearly give a lot of confidence. ‘Consumption’ is another key theme with recent reforms such as GST 2.0, rationalized tax slabs and lower costs of capital have increased consumer spending and will benefit companies capitalizing on pent-up demand. ‘New Age Digital Companies’ is also one of our top themes from a long-term perspective. Other themes include Mid-Cap IT, financial services and healthcare.

2025 has been a year of exhaustion for IT. Given the valuations, do you see opportunities for a turnaround next year?

We continue to watch for signs of a revival of growth in the IT sector, especially among the larger IT companies on the software side. Given slower growth in the US, we are seeing lower spending from companies in the technology sector, which has also moderated expectations from top IT companies in recent quarters. So while valuations are compelling, we would wait for a positive signal on earnings recovery, which could continue in the medium to long term. Although we are still reasonably assigned to MID IT names that are not necessarily in the software sector but focus on areas that are more inclusive and niche in the areas of platform, IOTA and cloud computing.