PSU banks still a no-go area for investors, but can be trading bets: Vivek Mavani
Valuations of private banks and NBFCs are at elevated levels, says Vivek Mavani.
We had started off on a great set of cues yesterday but then you had that push come in from the RBI policy. Now, as you look into the details, it is not as dovish as it looked on the face of it. Would you say that the entire short covering bout that we saw in PSU banks could be undone or is the RBI going to be on hold for a long time to come. Is there a case to selectively buy into PSBs?
The RBI policy is a one day event that comes and go in every couple of months. Next week onwards, the result season will start and there will be some of the key things to watch for especially in the large sector which have meaningful weightage on the Nifty. For instance, banks, financial services etc having a 30% share in the Nifty.
Apart from these, there will be Auto sector that deserves attention due to its consistent performance. However in the banking sector, interest rates will be a significant factor. On the other hand, Inflation is another significant factor and it seems that if inflation shoots up in the next two-three months due to delayed monsoon or whatever the case may be, the next RBI policy review may adopt a hawkish tone.
The only heartening thing was the cool off in terms of bond yields which has happened in the last couple of weeks. And thanks to the comments by RBI, it has also been a trigger. Coming back to the individual stocks and sectors and what to watch out in the result season; banking sector has been seeing a lot of pain for the last five years. A phenomena which was exclusive to the PSU Banks has now seen spilled over to the private banks as well.
NBFCs have been aggressive in the last few years. So as far as private banks and NBFCs are concerned, valuations have been at elevated levels. Therefore, from here any kind of negative news flow including the performance disappointment, could have some serious corrections there. Hence, these are the things to watch out in the next couple of years.
Earnings are not and trust me if I would have taken IT out of the equitation this year, then the market cuts would have been very deeper and very bigger.
Oh yes, of course I think beyond doubt even if you include HDFC twins in your cut out in the rest of the 38 stocks; the Nifty levels would still have been at 9500. Also, I think 9500 will be coming much sooner than expected especially if we experience some large cap Nifty disappointments on the results front.
So you are saying 9500 is going to be the new reality on the index?
If corporate earnings disappoint one more quarter in the same way as it has since 16 or 18 quarters then certainly we are heading for 9500.
What is your view on valuations of banks?
Well as far as valuations are concerned, some of these banks look meaningless because there is really no book value left given the losses that needs accounting for this quarter. Although RBI has given them a concession in terms of spreading the M to M losses on their investment and bond portfolios over the next four quarters, sooner or later all of these losses have to be accounted for. So, whether you account for it in the fourth quarter or the first quarter, the fact of the matter is losses will remain. And it is not only the PSU banks but the entire banking sector which is suffering from it. But, yes it is the PSU banks whose problem is more serious and larger to deal with. Therefore, as per my view, PSU banks are still a no go area. They are only trading bets i.e. one trades the bank stocks for 5-10% on a weekly basis, buy them on declines and sell the rallies. I think that is the only trade one can think of in PSU banks at the point of time.