Financials, healthcare and materials expected to lead market as economy enters recovery phase: Report

New Delhi [India], August 19 (ANI): Financials, healthcare and materials are emerging as key sector leaders as the macroeconomic cycle moves into a recovery phase, although investor sentiment in equities continues to remain cautious, according to a report by SBI Funds Management's August 2026 sector outlook.

The report said while the "Macro Cycle Regime moved to the recovery stage", the "Equity Sentiment Regimes is still showing anxiety". Against this backdrop, SBI MF said it is currently positive on healthcare, financials and materials. The report said the three sectors are supported by a combination of improving fundamentals and sector-specific factors.

It noted that "Financials offer the strongest combination of supportive macro conditions, reasonable valuations, solid industry trends and favourable positioning", with earnings momentum also supporting the outlook.

Within financials, improving credit growth is emerging as a key factor. Bank credit growth has recovered sharply from 9 per cent a year ago to 19.3 per cent by July 2026, while deposit growth has also picked up.

The report said deposit growth has been partly supported by robust inflows under the FCNR(B) scheme, which stood at 15.4 per cent year-on-year as of July 2026.

SBI also pointed to signs of improving industrial credit growth and rising leveraged capital expenditure among corporates.

At the same time, it said downside risks to bank margins have eased as RBI liquidity measures have resulted in moderation in term deposit and certificate of deposit rates, which are important short-term funding costs for banks.

The report maintained its positive view on healthcare despite the sector's strong performance over the past couple of years. Its outlook is supported particularly by improving conditions in the US Generics segment.

SBI MF said the earlier trend of price erosion in US Generics has reversed and the segment is now seeing a "very stable to a positive environment". Increasing drug shortages across small molecules and biologics have also supported the outlook.

The report also highlighted rupee depreciation as a tailwind for US Generics, while valuations of US Generics companies remain below their long-term averages compared with other healthcare segments.

Within Materials, SBI prefers Chemicals and Paints. Chemicals are emerging from a difficult period marked by high channel inventories and China-led dumping.

The report said inventory levels have now cleared, while the depreciation of the Indian rupee against the Chinese renminbi has improved the competitiveness of Indian chemical companies.

SBI also expects chemical margins to improve after declining over the past two years.

Overall, the report's sector framework points to Financials, Healthcare and Materials as areas of conviction as the economic cycle improves, even as market sentiment remains cautious. (ANI)

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