Nov 01, 2017 11:34 AM IST | Source: CNBC-TV18

Kotak MF's Nilesh Shah sees earnings improvement in Q3, prefers banks over NBFCs

Shah said that lower base effect to help earnings numbers and believes bank recap, a game changer, will help in better credit growth.

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On a day when the market clocked a fresh record high milestone, the dialogue on the run up in its valuations has continued.

Kotak Mahindra AMC said that while ‘the market is at an all-time high, the valuations aren’t’. “In 2008, profit as a percentage of GDP was 7.1 percent and now that is 3 percent and it could move towards 5 percent levels,” explained Nilesh Shah, MD, Kotak Mahindra AMC in an interview to CNBC-TV18.

The profitability will only improve once interest rates come down and there is higher capacity utilization.

Speaking of profits, Shah is optimistic that earnings will improve from the next quarter on the back of lower base effect as well. In fact, for the September quarter, he expects the numbers to be largely in line with estimates as well.

On a sectoral basis, Shah said the government’s bank recap programme was a game-changer. “However, there should also be some administrative reforms where PSU banks get more flexibility, decision making is away from external influence and giving compensation to talent,” he told the channel.

In fact, he added, that one can prefer banks over NBFCs on the back of a recap and believes credit growth for PSU banks can expand to 15-20 percent post recap.

Watch accompanying video for more details.
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