“These last two years, especially the last six to seven quarters, have been PSU banks. The numbers have been better and what the management has guided, most of the banks have delivered that way.”
“Businesses and utilities which have access to right cost of capital and second point here being that their ability to stay disciplined and not just chase growth for the sake of growth, I think a combination of this will matter and in my reading there are a lot of select businesses with few select business opportunities with those with credible managements.”
When a sector gets re-rated, it is the leader of that particular sector which tends to get the attention in the first leg. If the fundamentals of that sector continue to improve, then companies which are lower than in terms of scale and size are the ones which tend to get re-rated. If one looks at the re-rating of PSU banking space, the likes of SBI, BoB had started to do well some time back. But the mid and smaller PSU banks, not smaller when one looks at the market cap, but in terms of geographical presence and overall size of the business are likely to get more attention now. There are multiple reasons for it: GDP growth rate has a strong correlation with credit off take, which will be visible even in the books of these banks. Some of these banks started their digital journey late, the impact of which will be visible in the coming quarter.
“I feel that some of the small and the mid-size PSU banks definitely will improve because there will be a case for inclusion in the portfolio because of the weightage allocation policy. More importantly, the size of the balance sheet would matter as far as the long-term investors are concerned. ”
There are many sectors which have seen a re-rating in the last nine years. Especially in sectors like railways, defence where both the policy direction and funds both come from the government have seen a strong performance. There is another sector where policy making has an impact but it takes more to show its impact that is PSU banking space. With better than expected GDP numbers and the fact that state elections have thrown results, which street would take a sign of continuation of the current policies of clean up of the sector, will PSU banks see another round of push. ?