Sankaran Naren favours banks, power as oil risks loom

India’s second-largest money manager is bullish on banks, oil refiners, power utilities and drugmakers, betting they are best placed to benefit from demand tailwinds despite a volatile global backdrop.

Attractive valuations for lenders, along with rising demand for power infrastructure and healthcare, make the sectors compelling investment opportunities, according to Sankaran Naren, chief investment officer of ICICI Prudential Asset Management Co., which has about 11.8 trillion rupees ($123 billion) in assets, with equities making up over two-thirds of the total.

“Banking remains one of the most attractive sectors in India,” he said in an interview on Wednesday.

The remarks from Naren, one of India’s longest-serving fund managers who popularised contra and value investing in the country, come as corporate earnings show signs of recovery. Materials, utilities and financial services have led the turnaround, with more than half of the 34 NSE Nifty 50 companies that have reported June-quarter results beating profit estimates, data compiled by Bloomberg show.

The improving earnings outlook has helped put the benchmark Nifty on track for a second month of gains. The advance has also been assisted by a revival in foreign inflows and a recovery in the nation’s beaten-down software stocks as investors rotate out of chip shares elsewhere in Asia. But the spike in Brent crude prices above $90 a barrel poses a risk to the recovery, Naren said.

“If you have earnings growth improving but the macro risk increases — if crude goes to $100 — the market will assign a lower valuation,” he said. “You need a situation where earnings are improving, and crude and monsoon are comfortable.”

Reflecting that view, Naren’s $9 billion ICICI Prudential Multi Asset Fund, which has beaten 95% of peers over five years, remains overweight on lenders and has added Kotak Mahindra Bank, HDFC Bank and Union Bank of India in recent months.

“Prolonged foreign selling has left many large-caps trading at appealing multiples,” he said.

Global funds dumped $6.5 billion of financials shares in March as part of their broader exodus from Indian equities, pushing the NSE Nifty Bank index close to bear-market territory. The measure has since rebounded more than 13% but still trades at nearly a 20% discount to its long-term price-to-book value, data compiled by Bloomberg show.

Outside of financials, Naren also sees opportunities in power and pharmaceuticals, betting rising electricity consumption will spur investment in generation and transmission grids. Drugmakers benefit from globally competitive exports and growing domestic healthcare demand, he said, repeating his long-standing bullish stance on the sector.

“Pharma has consistently delivered for us. We continue to find the sector attractive,” he said.