“One thing is very clear, that the per unit cost for IT outcomes is going to come down,” he said, noting that this has created concern for Indian IT stocks.
At the same time, he added that companies will increase technology budgets. “Every business will have to spend more and more on IT and more on technology.”
Gupta referred to the idea of “technology debt,” where companies must modernise legacy systems. He said the opportunity is significant, but stock selection will be key. “We will have to be much more careful in determining who will be the winners, who will gain market share of this spending.”
He said near-term revenue pressure is limited, but valuation multiples may come under scrutiny due to uncertainty around future models.
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On banking stocks and recent Reserve Bank of India (RBI) measures, Gupta advised a closer look at headline credit growth numbers.
He explained that part of the recent 14% credit growth reflects a shift from bond and commercial paper markets to bank loans due to higher bond yields. Adjusted for that shift, overall credit growth is running at 11–12%, in line with nominal gross domestic product (GDP) growth.
He expects improvement next year as economic indicators strengthen. Inflation is expected to be near 4%, and demand indicators such as power, cement and commercial vehicles have improved.
“So, I think on the back of this economic pickup that seems to be coming through, you will see a better loan growth, double-digit loan growth in the banking sector,” he said.
On insurance and banking regulations around mis-selling, Gupta said tighter norms should support long-term penetration and customer retention.
Gupta said confidence in earnings recovery has improved.
“Over the last 15 days, the confidence about the recovery has gone up,” he said, adding that for the first time in seven quarters, there has been no downward revision in market earnings after results.
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He expects earnings growth of 13-14% in the coming year, compared with 6–7% growth previously.
Sectorally, he sees momentum in financials, automobiles and discretionary consumption, along with structural themes in power and defence. He remains cautious on IT.
On foreign investor selling, Gupta said risks remain.
“I think those are still open red flags,” he said, pointing to global earnings strength and potential dollar appreciation as factors that could continue to influence capital flows.
He noted that emerging market earnings growth is expected to be strong this year, and global manufacturing activity is picking up. As a result, domestic recovery alone may not ensure sustained foreign inflows.
For the full interview, watch the accompanying video
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