we have three teams as hot favorite for title in Champions League and these are Manchester City, PSG and Bayern Munich
You left Real Madrid out of this and for the record alongside all those three teams that you have listed, Real Madrid has also won twice so far so there is no reason to leave them out of the equation for now. Well if you insist on doing only top three teams then you should probably leave PSG out of it because Im not convinced that they are going to win anything out of their domestic league
Yes, Real Madrid are the favorites in the Champions League, because they have the mentality for it. In fact, I rank them as favorites every season, although many doubt they won't speak much more in the Champions League. There is no reason not to put them in the list of favorites this season for what they have achieved in La Liga and also in the Champions League chapter.
But for now if I compare between PSG and Bayern Munich it seems PSG is definitely better, when Bayern Munich's dominance in the Bundesliga starts to crumble then of course Bayern Munich will place a higher focus on the Bundesliga. Although indeed, so far Bayern Munich is still doing well in the Champions League by leading group C but if its performance worsens in the Bundesliga I am personally quite sure the performance will be unconvincing as well to be able to advance further in the Champions League.
Bayern Munich is now far behind in the Bundesliga. If they don't focus on the Bundesliga now, it will be difficult for them to win the Bundesliga title this season. Because this season the performance of teams like Union Berlin, and Dortmund is good. On the other hand, the PSG team has been able to maintain consistency in both the Champions League and Ligue 1. If they can maintain such consistency, their performance in the Champions League will not deteriorate.
It is well understood in the case of Real Madrid. They are always a threat in La Liga and Champions League. Real Madrid had a great unforgettable run last season. They defeated defending champion Chelsea, they went into a back and forth action against Manchester City before they rammed Liverpool in the finals. This season, Real Madrid is more confident of a repeat.
The Champions League is always a tough league. Bayern Munich for example is another team that won the finals multiple times. What happened to them in Bundesliga now already happened to them before and they always weathered the storm.
My favorite teams to win this season are Manchester City and Real Madrid. I will put Bayern Munich and PSG tied at 3 and 4.