Do you expect the outperformance of this PSU banking space to continue in 2023?
Yes, we do believe that and we have seen recently most of them rallying significantly. But what we believe is that the valuations are still below the peak levels. So there is a possibility where we will see some valuation upgrade still.
But if you had to give the top recommendations from the entire PSU banking space what would those stocks be?
So,
definitely among the large caps remains the top in terms of PSU banks. The other one can be Indian Bank which still has open valuations. Bank of Baroda also recently rallied but on dips. Even that can be accumulated from a longer term perspective so I think these three should be seen.
One is about PSUs rallying which probably has happened but where do you see core banking sector. Do you think banking as a sector will also tend to do well?
Frankly speaking yes, banks currently in the last year have outperformed. We should see credit bounce back continuing. We should definitely see all banks performing including other large cap private sector space and PSU banks.
Also wanted to understand what are the things that investors need to be watchful of because right now it is a rising tide phenomenon. All the names whether , Punjab & are all rallying as of now. Which are the key things that one needs to be watchful of because earlier there was this big overhang of bad asset quality. How do you see it trending going forward?
So asset quality per se is largely behind because most of the corporate lumpy assets are not there in the books. What was there in the past has been taken account of either they are in some NCLT cases or in the GNP already recognised with majority provision because PCR is almost more than 75-80% for most banks.
So with that I think asset quality is right now not a worry at least for the next two years.
Maximum what we can see is some of the MSME loans which were there in the last two COVID years may slightly see some uptick in NPAs because retail is also still not showing any signs.
So MSME can be one mid segment but which is not lumpy as such so that is why I think worry on asset quality is not there particularly in large banks or PSU banks at this point in time.
For an investor the question also really becomes should one look at private banks versus public sector banks? If you had to take a call private versus public whether large cap private, small cap private and similarly in public sector as well which is that pocket which looks the most fundamentally strong to you?
So if you look at fundamentally strong it will remain large cap private sector banks only. PSU banks are currently a trade that has got generated because of sudden turnaround in their growth plus asset quality worries and valuation gap still remains.
So I think PSU banks are catching up on valuation that is a trade which can be played in the short to medium term. But private sector banks in the large cap space will remain as good investments from a longer term perspective.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
