India Stocks: Auto, Banks Set for Gains Post-Pay Hike

Indian equities are poised for gains, particularly in the auto sector, as a significant government wage hike is set to take effect by June 2027. Sandeep Bhatia, Managing Director and Head of Equity India at Macquarie Capital, anticipates this will boost discretionary spending on vehicles.

Bhatia also pointed to a potential rotation between technology and power-sector stocks over the next 18 months, contingent on the movement of artificial intelligence (AI) valuations in Western markets. He named Hyundai Motor India and Ashok Leyland as top auto picks, citing new model launches and consumption growth.

In the banking sector, private banks such as ICICI Bank and State Bank of India are seen as attractive following recent market sell-offs. Shriram Transport Finance Company is also highlighted as having bottomed out, presenting a value opportunity for investors. Bhatia noted that corporate governance in India is among the best in Asia.

While near-term festive season sales in September and October might appear soft due to traditional observances, the overall outlook for autos remains positive. Private banks' recent underperformance is attributed to over-ownership by FIIs rather than weak fundamentals. The lending system remains healthy, with the RBI taking prudent measures.

Macquarie maintains a positive view on power transmission and data-center stocks due to ongoing capital expenditure. However, Bhatia cautioned that a correction in AI-linked stocks globally could impact Indian power and equipment names tied to the same theme. Existing investors might consider holding both technology and power stocks as a hedge.