Motilal Oswal AMC’s Atul Mehra says this is the most undervalued pocket of India’s stock market

Large private sector banks are among the most undervalued segments of the Indian stock market today and could see a sharp re-rating when foreign investor flows return, according to Atul Mehra, Fund Manager at Motilal Oswal Asset Management Company.

Speaking to CNBC-TV18 on the sidelines of ICICI Securities

India Investor Conference 2026, Mehra said persistent selling by foreign institutional investors (FIIs) has weighed heavily on financial stocks despite the sector's strong fundamentals.

“If you look at private banks as a space, there is nothing really wrong with them,” Mehra said. “In terms of asset quality, it’s the best it’s ever been. Credit growth is now closer to 14%, which is also fine.”

According to him, the weakness in valuations is largely a result of overseas investors trimming exposure to India rather than any deterioration in the operating environment for banks. He noted that financials account for a significant portion of foreign portfolios, making them the first casualty when investors reduce allocations.

“The only thing, as you rightly said, is that over the last few months and quarters, there has been continuous FII selling,” he said. “Since 50% of their portfolios are in financials, when they sell, they keep selling these financials.”

Mehra said leading private banks continue to enjoy advantages in attracting deposits, particularly at a time when competition for liabilities remains intense across the banking sector. Strong asset quality, healthy credit growth and franchise strength leave the sector well-positioned for future gains, he added.

“That’s why a lot of these names today are trading at extremely attractive valuations. Whenever there is a change in flows, we could see a lot of repricing in many of these names. This is one of the most undervalued pockets of the market today,” Mehra said.

While maintaining a positive view on financials, Mehra made it clear that his preference remains firmly tilted towards private lenders over state-owned banks. He said the fund house owns only one major public sector bank, while holding multiple large private-sector banking names in its portfolios.

The fund manager attributed the recent lack of enthusiasm among global investors towards India to broader international themes that have dominated capital flows. According to him, global investors have focused on markets benefiting from the artificial intelligence boom and oil-related opportunities, areas where India has not been a direct beneficiary.

“India stands on the losing side of both AI as well as oil,” Mehra said, adding that being overweight India has hurt many global investors relative to other markets where those themes have generated substantial returns.

Despite the subdued foreign participation, Mehra believes the banking sector's underlying fundamentals remain intact, making large private banks one of the most compelling opportunities in the market today.