Nilesh Shah Favors Private Banks, Shuns Oil-Sensitive Stocks as Iran Conflict Weighs on Markets

Nilesh Shah, Managing Director at Kotak Mahindra AMC, laid out his current view of the Indian market in a question-and-answer interview with Moneycontrol. His central message: in a market shaken by war in the Gulf, stay with resilient domestic themes, lean toward private banks and financials, and keep away from anything tied closely to the oil price.

The backdrop is oil trading above $100 a barrel, which Shah called a clear macro shock. He traced it to the Iran conflict and disruption around the Strait of Hormuz. In his account, it will push up inflation, widen the current account deficit, pressure the rupee and slow GDP growth. Corporate earnings will take a hit through margin compression, especially in sectors that depend on imported oil.

On what the government might do, Shah said he expects calibrated support rather than a sweeping package. He pointed to the Prime Minister's appeal for austerity. In his reading, fiscal prudence will hold, with more divestment and asset monetisation creating room for targeted steps: fuel and fertiliser subsidies, duty tweaks, and faster capital spending on infrastructure and rural schemes. He said the government understands that protecting domestic demand and investment momentum is critical.

Global equities, he said, have recovered sharply from the first sell-off after the conflict began, and are close to pre-conflict levels, in some cases above them. He credited liquidity, AI optimism in the US and resilient earnings in select pockets. But he cautioned that the geopolitical risks have not gone away, so the rebound is not as carefree as the mood before the conflict.

Foreign institutional investors have been net sellers in India. Shah attributed this to higher oil, rupee volatility and a global shift toward AI and semiconductor leaders. He said the selling is not indiscriminate: many foreign funds still look for bottom-up ideas with visible earnings, quality management and reasonable valuations. Domestic money, through SIPs and domestic institutional investors, has provided what he called a crucial counterbalance. He also agreed that India's thin presence in AI and semiconductors is an important reason for foreign caution, since global capital is chasing that theme and India has limited pure-play exposure. IT services can adapt through AI application layers, he said, but without large-scale manufacturing or fab plays, India is less exciting to thematic global allocators in the short term.

His stock preferences follow from that. Private banks and financials look attractive to him: valuations are cheaper than historical averages, deposit franchises are strong and asset quality is improving. He drew a contrast with PSU banks, which have re-rated strongly over recent years and now offer a less compelling risk-reward. Private banks, he said, offer better valuations relative to history, cleaner balance sheets and better long-term growth potential, so selective exposure makes sense.

Beyond banks, he named select healthcare (hospitals and specialty pharma), cement and infrastructure plays that benefit from government capex, and quality consumer discretionary names with strong brands and pricing power. The group to avoid, until the conflict becomes clearer, is oil-sensitive: oil marketing companies and petrochemicals.

Asked whether the Trump-Xi meeting could help, Shah said the talks open a window for de-escalation. China has influence with Iran and an interest in stable energy prices and trade. A full resolution may take time, he said, but a positive signal could ease oil prices and lift sentiment quickly. He closed by saying the structural India story is intact and that patience and SIP discipline should reward investors over the medium term. Moneycontrol's disclaimer notes that expert views are their own and readers should consult certified advisers.