Why Is JPMorgan Still Underweight On IT And Increasing Bets On Banks And Capital Markets?
🔹 JPMorgan’s stance reflects a tactical and thematic repositioning: underweight on IT after a year of cautious views, while favouring PSU banks, NBFCs, capital market platforms and select private banks. The bank highlights deregulation as a powerful structural lever for productivity and economic growth in India.
🔹 The preference for financials—especially state-owned banks—stems from a view that the cycle in credit, improved asset quality, and regulatory tailwinds will create durable earnings upgrades in the sector, compared with the secular but slower-recovering IT space.
JPMorgan’s view captures two distinct investment narratives in India today. One is the structural story of technology-led services that has driven India’s earnings for a decade; the other is a cyclical and policy-driven re-rating of financials and capital markets. By remaining underweight on IT, JPMorgan signals continued caution on growth visibility, margin expansion and valuation support in a sector that has seen choppy deal cycles and selective client discretion. Conversely, financials—particularly PSU banks and NBFCs—are viewed as beneficiaries of easier credit conditions, improving loan growth, and potential deregulation-led expansion.
🔹 JPMorgan stays Underweight on IT after roughly a year of cautious positioning.
🔹 Preferred sectors: PSU banks first, followed by NBFCs, capital markets plays, and private banks.
🔹 Stronger constructive tilt toward PSU banks compared with other financial sub-sectors.
🔹 Deregulation is highlighted as a major productivity and growth unlock for India.
🔹 The bank expects differentiated returns from financial intermediaries as credit cycles normalise and fee-related businesses expand.
For investors, the message is two-fold. First, the IT sector’s secular advantages remain, but timing matters: earnings recovery and deal conversions are uneven and may lag macro stabilisation. Second, bank-centric plays (PSUs/NBFCs/private banks) offer near-term cyclicality combined with structural upside, especially if deregulation and policy reforms accelerate credit intermediation, fee income diversity, and capital market activity.
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How JPMorgan’s Preference Compares Across Sub-Sectors
| Sub-Sector | JPM View | Rationale |
|---|---|---|
| PSU Banks | Prefer | Improving credit cycles, potential margin tailwinds, valuation upside. |
| NBFCs | Prefer | Leverage to consumption and retail credit, improving asset quality. |
| Capital Markets | Prefer | Fee income, flow-based upside from listings and increased market activity. |
| Private Banks | Prefer | Stable margins, retail franchise growth, and NIM expansion potential. |
| IT Services | Underweight | Cautious on demand timing, margin cycle and valuation realignment. |
JPMorgan’s emphasis on deregulation deserves special attention. Deregulatory moves — whether in sectoral licensing, market access, capital rules, or labour reform — often have outsized productivity benefits. For India, the cumulative impact of reforms can unlock higher investment, more efficient resource allocation, faster credit intermediation and better market depth. Financial intermediaries, including PSU banks and capital market platforms, could be early beneficiaries of such structural changes.
Strengths🔹 Financials offer direct leverage to credit growth and policy tailwinds. 🔹 Deregulation can accelerate productivity and attract capital. 🔹 Capital markets stand to gain from higher listings and fee flows. |
Weaknesses🔹 IT underweight reflects near-term demand uncertainty and margin variability. 🔹 PSU banks carry legacy risks and governance issues that require monitoring. 🔹 NBFCs remain sensitive to funding cycles and liquidity conditions. |
Tactically, investors may consider the following approach: increase exposure to financials through high-quality PSU banks and selectively to NBFCs with strong liability franchises; rotate a portion of IT allocation into capital-market plays that benefit from improved flows; and maintain discipline on valuation and risk management given global macro uncertainties. Importantly, diversification across bank types (PSU vs private) and capital market platforms reduces idiosyncratic risk.
Opportunities🔹 Deregulation could catalyse a longer productivity cycle and expand credit reach. 🔹 Capital market firms may see higher fee incomes from IPOs and increased participation. 🔹 Private banks can scale retail and wealth segments rapidly as markets deepen. |
Threats🔹 Global risk-off events could hit flows and reverse short-term gains in capital markets. 🔹 Slower-than-expected implementation of reforms would delay the productivity payoff. 🔹 IT demand could remain patchy if global tech budgets retract further. |
JPMorgan’s positioning underscores that portfolio rotation is as much about macro and policy signals as it is about company fundamentals. For investors, the key is to separate long-term secular winners from cyclical beneficiaries: while IT remains a secular story, the current cycle may favour financial intermediaries that capture near-term policy and credit momentum.
🔹 JPMorgan’s preference for PSU banks, NBFCs, capital markets and private banks reflects a blend of cyclical opportunity and structural policy tailwinds. Investors should calibrate exposures, favouring names with strong liability franchises, improving asset quality, and visible fee income sources.
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Investor Takeaway by Derivative Pro & Nifty Expert Gulshan Khera, CFP®
JPMorgan’s sustained underweight on IT and shift toward financials is a reminder that market leadership rotates with policy and macro inflections. Deregulation could be the defining catalyst for India’s productivity and capital deepening — and financial intermediaries are front-line beneficiaries. Investors should use this phase to reassess sector weights, favouring bank franchises that combine scale with improving credit dynamics, while treating IT exposures selectively until clearer demand signals emerge. Maintain discipline, balance cyclical bets with high-quality secular exposure, and calibrate positions to risk appetite and time horizon.
Related Queries on JPMorgan’s Positioning
🔹 Why is JPMorgan underweight on IT despite long-term secular trends?
🔹 How will deregulation specifically benefit PSU banks and capital markets?
🔹 Which NBFCs have resilient funding models to capture the recovery?
🔹 Should investors rotate from IT to financials now or stage positions?
🔹 What macro or policy triggers would reverse JPMorgan’s stance?
