Interest rate cuts might hurt bank margins in the near term, but financial stocks are still the best way to play the economic recovery, says Rahul Chadha, Founder and Chief Investment Officer at Shikhara Investment Management.“As the economy kind of bottoms and grows from here, banks are the best proxies,” Chadha said, adding that he prefers large-cap private banks for their steady earnings, along with a few well-managed mid-sized lenders.
“This quarter may be bit soft for banks… but from a medium-term perspective, look, banks are the best way to play the economic recovery,” he said.
He expects rate cuts from central banks to support growth and market sentiment. “Come September, Fed is going to cut rates. Growth should improve from here on, so which is why, overall, we would buy the dips.”Chadha is also betting on a recovery in discretionary consumption, especially in areas like travel, hospitality and quick commerce. He prefers these over staples, which he believes are facing stronger competitive pressures. “You will get a bigger kind of a bang for your buck in terms of growth recovery from a three year perspective in the consumer discretion in select categories,” he said.
“This quarter may be bit soft for banks… but from a medium-term perspective, look, banks are the best way to play the economic recovery,” he said.
He expects rate cuts from central banks to support growth and market sentiment. “Come September, Fed is going to cut rates. Growth should improve from here on, so which is why, overall, we would buy the dips.”Chadha is also betting on a recovery in discretionary consumption, especially in areas like travel, hospitality and quick commerce. He prefers these over staples, which he believes are facing stronger competitive pressures. “You will get a bigger kind of a bang for your buck in terms of growth recovery from a three year perspective in the consumer discretion in select categories,” he said.
On global risks, Chadha believes the noise around tariffs is likely to continue but markets are unlikely to react unless higher duties are actually collected.
He warned, though, that any sudden move to change leadership at the Federal Reserve could shake both bond and equity markets. “If the government, or the administration here takes a whimsical way to change the guard or the chairman… I think that would be taken negatively by the bond markets, and obviously equity markets would also react to that.”
