JM Financial Institution maintains a structural underweight position of almost 200 basis points on the information technology sector, as reported by CNBC TV18. According to Venkatesh Balasubramaniam, MD and Head of Research at JM Financial Institution, while short-term trading bounces may occur, the medium-term outlook remains negative. The brokerage cites two primary headwinds: increasing setup of offices by GCCs in India, which has slowed down growth in largecap IT, and the AI overhang that continues to be present until there's clarity on the end game. Despite a recent relief rally sparked by Tata Consultancy Services reporting results slightly ahead of expectations, JM Financial views the sector as one of its largest underweights.
Within the banking, financial services and insurance (BFSI) space, JM Financial anticipates a subdued second quarter performance, as reported by CNBC TV18. While BFSI companies account for roughly 45% of the Nifty weight, their incremental profit after tax contribution is projected at only 28%. The firm's model portfolio is overweight on non-banking financial companies (NBFCs) and underweight on banks by almost 400 basis points. NBFC growth is estimated at 36% for the quarter—mirroring the 37% seen after the first quarter—sharply outpacing the 11% growth anticipated for private sector banks and 1% for public sector banks. Recent developments show the RBI raising minimum daily CRR maintenance requirement to 99% from 90% from October 16 to curb banking system liquidity, with Jefferies expecting limited impact on banks' net interest margins.
According to CNBC TV18 reports, JM Financial's preferred NBFC picks include Aditya Birla Capital, Chola Finance, and PNB Housing Finance. Among private lenders, Axis Bank stands out as a strong preference. The outlook for the NBFC segment remains positive, supported by 20% asset under management growth, 3% return on assets, and 15% profit growth. Addressing the Reserve Bank of India's recent 25-basis-point rate hike and shift to a tightening cycle, the resulting negative impact on NBFCs is expected to flow through in financial year 2028 rather than the current financial year 2027. Recent market volatility has seen significant selling pressure, with Sensex dropping 1,045.46 points and Nifty falling 371.25 points, resulting in a market capitalisation loss of nearly ₹10 lakh crore.
On the capital goods and artificial intelligence infrastructure front, as reported by CNBC TV18, the domestic focus is firmly on data center expansion. This massive build-out is viewed as a structural story, bolstered by government tax incentives introduced a year to a year and a half ago. Companies operating in this theme hold very strong order backlogs and are expected to deliver extremely robust quarterly numbers, presenting a strong area for investment. Weaker-than-expected earnings from US AI firms such as Anthropic are not projected to impact India's data center investments.
