Bank stks resilient, have attractive valuations: Karvy

Advance tax numbers show banks performed well in Q1 despite interest rate pressure. The HDFC twins top the list with IDBI and Dena, the two surprise third rankers. The two biggies, ICICI and SBI haven't done too badly either. Does this mean a stronger quarter at all?

Hemindra Hazari of Karvy Stock Broking believes that the advance tax numbers are impressive especially in the light that bank stocks had taken a beating and had underperformed the Sensex. He said, "We are probably seeing that credit income for this quarter could be better than last year. Margins could be under some pressure because rates have been rising and banks have been very reluctant to increase their lending rates because of political pressure. Overall and from the kind of feedback that we are getting from bank managements, we should have a pretty reasonable quarter."

Excerpts from CNBC-TV18's exclusive interview with Hemindra Hazari:

Q: Did the advance tax numbers impress or is this something the market should not take seriously?

A: The tax numbers are impressive especially in the light that the bank stocks had taken a beating and they had underperformed the Sensex. When we look at the first quarter earnings of banks, we must appreciate that the credit growth situation, from what the numbers reveal, is better than last year. In terms of absolute growth over March-end as well as even on YoY basis, the absolute amount shows that credit is going higher which is also slightly unexpected. That could be explained by the fact that inflation is rising and since banks do financing of working capital inventories, the value of inventories could have gone up.

We are probably seeing that credit income for this quarter could probably be better than last year. Margins could be under some pressure because rates have been rising and banks have been very reluctant to increase their lending rates because of political pressure. Overall and from the kind of feedback that we are getting from bank managements, we should have a pretty reasonable quarter.

Q: How are you looking at banking valuations at this juncture would you recommend that your investors buy banking stocks at current levels?

A: Definitely, we have been strongly recommending bank stocks because they have severely underperformed the market and it has come to a point where you are getting very appealing valuations. In some banks you are getting them at even below the FY08 adjusted book value, which is an extremely attractive investment.

Q: Would you pick PSU banks ahead of private sector banks as far as valuations go because in today’s trade at least the private sector banks seemed to be outperforming?

A: For sometime in this last six months, PSU banks are performing better especially after the derivative problem came to light. We are pushing banks like Axis Bank and some of the PSU banks, which are trading below the FY08 book value like the Bank of Baroda, Indian Bank, Corporation Bank and Punjab National Bank, which we think has quite an optimistic outlook.

Disclosure:

You can assume that myself and the firm have investments in some of these bank stocks.