Beware of this bear mkt: Don't buy stocks in a hurry

CNBC-TV18’s Managing Editor, Udayan Mukherjee - Banking space will probably bleed the most in this kind of a bear market. We keep hearing about lots of talk about how valuations have corrected enough and therefore 0.8-times book, 2.2-times book and therefore we should be going and buying them. I think on hindsight this will all look like value traps and we will probably sink to lower levels because the signs are very clear of what’s going on and the market is just choosing to focus on the bad news with banks. Because it has got in its head that this is going to be the punishing poster boy for this bear market. So Axis Bank’s numbers came in people didn’t focus on the NIIs etc and the kind of growth. They chose to focus on just two or three bad bids which is NIMs has gone down and the fact that NPAs probably were going up and therefore the stock got hammered even after the kind of numbers that they came in with.
 
People are talking about different things like what kind of equity hits will be taken. My own sense is this whole other income business that banks had been riding on for the last couple of years for private banks not for public sector banks. Public sector’s other income depends on the treasury portfolio but for the private sector banks all that forex fee income, the ICICI Bank’s lovely other incomes, which were coming from equity sales in the bull markets, those are the things of the past and they will takeaway significantly from earnings growth over the next four-eight quarters.
 
So banks are getting derated. Now a month back we were discussing this and we were talking about the possibility of some of these private banks going back to 2-times book. We are not very far away from there. I think the more expensive banks like HDFC Bank is at 2.5-times, Kotak Mahindra Bank is at 2.3, Axis Bank is already about 2.3-times book. Will they reach 2-times book? I think you can say it with some certainty that they will reach there now.

My fear is that they will go even southward and they may even contract to say something like 1.5-times book. Now it doesn’t seem like a big gap between two and a quarter times book to 1.5-times book but in percentage terms that means almost a 30% shaving off from the current prices. That seems alarmist to say something like that because these stocks have fallen so much already in many cases they are down 60-70% off peak.
 
But I think you are getting that sinking feeling in the pit of your stomach that somewhere down the line you will find by the time this market bottoms out. HDFC Bank is at Rs 750-800 and ICICI Bank probably at Rs 400-450 maybe find a Kotak Mahindra Bank at Rs 300. This is the sector, which has got singled out by the markets the one, which will hurt the most. Lots of talks doing the rounds, brokerages are beginning to scale down targets now following the markets movement. So you are getting that bad feeling at the pit of your stomach it’s the exact opposite of what was happening to capital goods in the bull market, what is happening to banking right now.
 
I won’t be surprised to see some of these private banks actually go to howling value levels before you can pick them up. You would be better off playing the waiting game out here, no hurry; there is never any hurry to buy stocks in a bear market.