Indian hedge fund firm Avendus Capital sees bets on the country's banking sector as its preferred option for stock market wagers amid what it sees as a favourable upcoming interest rate cycle and the bottoming out of net interest margins, according to a report by the Economic Times.

Speaking at the Reuters Trading India forum, Andrew Holland, CEO of Avendus Capital Alternate Strategies said that the banking sector, which has been laggard in 2023 as well as for this year, is being overlooked by investors "given the interest rate cycle going forward".

The 12-member Bank Nifty index has returned 1.9% this year, compared with a 4.6% rally in the broader Nifty 50.

JPMorgan will begin including India in its emerging market bond index from 28 June 28, another significant factor being overlooked by investors, according to Holland.

"JPMorgan's bond inclusion is being ignored by investors and (its) impact on bond yields. (It is) good for MTM (mark-to-market) on bond holdings," he said.