PSU Banks, Infrastructure Lead India Sector Rotation as Rate Cycle Turns, Says RSB LLP

The Quick Take

• PSU banks are emerging as key beneficiaries as India's interest rate cycle turns, with NIMs expected to stabilise.
• Infrastructure and auto ancillaries flagged as high-conviction plays amid government capex push and export resilience.
• RSB LLP's Chakri Lokapriya recommends selective accumulation in these three sectors during current global uncertainty.

India's equity market is undergoing a visible rotation away from premium-valued consumer discretionary names toward rate-sensitive and capex-driven sectors. PSU banks stand at the centre of this shift as the Reserve Bank of India's easing cycle improves their net interest margins. Unlike private peers, public-sector banks carry lower loan-to-deposit ratios and have significant room to reprice liabilities downward, making them structurally attractive in an easing environment. The rotation also reflects investor preference for value-oriented names after growth stocks saw multiple compression through FY27.

Infrastructure stocks carry a dual catalyst: government capital expenditure running at record highs and a post-monsoon acceleration in project execution. Order books across large EPC players have expanded materially through FY27, and with working-capital cycles improving on faster government payments, earnings visibility has strengthened. Auto ancillaries add a global dimension: export-oriented Tier 1 suppliers to European and US OEMs benefit from both currency tailwinds and near-shoring trends as global automakers diversify away from single-country supply chains.

For investors, the critical watchpoint is credit quality within PSU banks. Gross NPA ratios have declined to decade lows, but a slower-growth global environment could test provisioning buffers if corporate stress re-emerges. Infrastructure names face execution risk if monsoon-related delays push Q3 timelines. Auto ancillary margins, while recovering, remain sensitive to steel and aluminium input costs. Lokapriya's framework of selective accumulation correctly frames this as a stock-picker's rotation rather than a theme that lifts all boats uniformly across the sector.

Synthesized from 1 source.