PSU Banks top alpha pick as OmniScience Capital stays overweight on banking sector

OmniScience Capital, a portfolio management services firm, believes public sector undertaking (PSU) banks present the highest potential for generating alpha in the medium term due to their clean balance sheets, double-digit growth, and significant undervaluation. CEO and Chief Investment Strategist Vikas Gupta described banking as a sector that is "completely mispriced," with PSU banks trading well below their intrinsic worth despite delivering impressive asset and revenue growth and boasting some of the cleanest balance sheets in decades.

OmniScience remains overweight across the banking sector, including PSU, large private, and mid-cap private banks, with mid-cap private banks expected to unlock valuations earlier and generate higher internal rates of return. Despite geopolitical uncertainty, Gupta stated that domestic revenue and earnings growth remain robust in India, with a GDP growth rate exceeding 7 percent achievable in the current fiscal year.

The firm is underweight on consumer discretionary and information technology sectors, as current valuations already account for substantial future growth, leaving limited upside potential. Hotels face similar valuation challenges, as strong fundamentals are insufficient without a meaningful discount to intrinsic value. Gupta cautioned that any potential AI bubble may be concentrated in US companies, as Indian corporates are not investing in AI to the same extent.

He emphasized that the massive investment by global Big Tech firms must ultimately translate into tangible revenues and profits. OmniScience Capital anticipates markets increasingly evaluating companies based on future cash flows, with undervalued businesses gaining valuation improvements while richly priced stocks may stagnate until earnings catch up.