Gartmore on 3 reasons why state-owned banks are safe

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Christopher Palmer of Gartmore Investment Management said markets are entering into a phase where they will continue to trade volatile. "Whether or not they will sink to new lows, in terms of valuations, remains a question more to do with how the banking market evolves. But based on stock market historic valuations, we shouldn't see a precipitous drop from these levels. We are not forecasting lower rates of volatility."

 He is positive on state-owned banks and feels they are more conservatively managed, and have a lower loan to deposit ratio. "So, any of the state-owned banks probably on this measure do come out being more defensive and flexible with regards to how they are going to conduct their operations through what is going to continue to be a difficult period for international finance."

 

Here is a verbatim transcript of the exclusive interview with Christopher Palmer on CNBC-TV18. Also watch the accompanying video.

 

Q: What is your sense looking at global markets- do you think most of the pain is over and we have put some sort of bottom for global markets?

A: I think there is no doubt. We are entering into a phase where markets will continue to be volatile whether or not they will sink to new lows in terms of valuations remains a question more to do with how the banking market evolves but based on the stock markets historic valuations, we shouldn't see a precipitous drop from these levels but we are not forecasting lower rates of volatility.

 

Q: Tactically would you look to increase exposure to emerging markets like India, expecting to see a rally or are you not quite confident of entering that space yet?

A: We think India is pretty well placed for the new global environment with the exception of a couple of banks in India. Neither the government nor industry borrows nearly as heavily from the international banking committee, some other markets and Indian Central bank tightened a couple of years ago did slow some of the run away growth down.

 

So India actually entered this phase of capital hoarding and 'cash is king', India entered this period in relatively good position with regards to its dependence on outside funding. India looks good in that, generally its banks are in good shape, government finances are in pretty good shape and any kind of slowdown will cut the current account deficit. So, India does look good from a defensive stand point.

 

Q: Any specific banks that you track, you were alluding to and are now concerned about in India?

A: We are concerned about some of the international operations of some of the big name banks in India. In recent years, they have opened up branches or expanded their branch activity in places like Singapore and London and we would still think that that is where they are booking lot of their international loans. So, there are still some questions over some of the more heavyweight Indian banks and their activities in those markets out there.

 

We would stick with state-owned banks. We think they are more conservatively managed, have better resources of funding and lower loan to deposit ratio. So any of the state-owned banks probably on this measure do come out being more defensive and more flexible with regards to how they are going to conduct their operations through what is going to continue to be a difficult period for international finance.