In an interaction with CNBC-TV18, Haria explained that tight liquidity, regulatory changes, and the dominance of public sector undertaking (PSU) banks will keep growth in check. While some financial stocks have already seen gains, he expects only a moderate upside from here.
Haria noted that banks are facing limited margin expansion, as deposit costs remain high and liquidity is just starting to improve. The January-March 2025 quarter (Q4FY25) results reflect a tight environment, but he expects “some improvements in the numbers” from next quarter onward.
He also stated that safe haven pricing is already factored in, with stocks like ICICI Bank and Kotak Mahindra Bank rallying when markets were weak. “Some of that outperformance is already there in the price,” he said, adding that new gains will likely come from rotation rather than fresh market leadership.
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On structural limitations, Haria said that rising deposit costs and tighter lending margins pose challenges. He referenced a recent comment from Uday Kotak, saying, “banks are lending at rates higher or nearly higher than their cost of funds,” making strong profitability harder to achieve.
The dominance of PSU banks is another limiting factor, as they are growing at the same pace as the broader sector. Haria explained that their strength prevents private banks from achieving the high growth rates needed to excite investors. “PSU banks are so healthy, alive and kicking, that they will not let the private sector grow beyond 12-13%,” he said.
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Ultimately, he sees rotation, not a growth catalyst, driving financial stocks. While different segments—private banks, PSU banks, non-banking financial companies (NBFCs)—may take turns outperforming, the sector as a whole lacks the momentum for a sustained bull run. Instead of a significant rally, Haria expects financials to deliver steady but limited returns in the near term.
Interestingly, this cautious view contrasts with comments made by Rana Gupta, Senior Portfolio Manager and India Equity Specialist at Manulife Investment Management, in a CNBC-TV18 interview on February 28. Gupta said, “We think that the next bull market… will be led by mostly consumer and financial stocks,” adding that within financials, non-banking financials are preferred over most banks.
For the entire interview, watch the accompanying video