Buy quality banks in 6 months, sit on them for a yr: Udayan

Bank stocks have been plagued with a multitude of problems says CNBC-TV18's Managing Editor Udayan Mukherjee.

The level of inflation is uncomfortable and while every investment bank and every economist is nearly predicting that inflation will come out, I think it is showing signs of stickiness which is worrying a lot of investors into the banking space. There are growth issues; there is a bigger issue of banks being able to attract deposits and the cost of deposits, which is beginning to worry a lot of people on the net interest margins. So far, bank chairmen have been very resolute in saying that their margins will not suffer. But the way the cost of liabilities is going up, I think net interest margins are probably under threat. To add to that, you are seeing what is going on in the yields in the bond market. There are some floating worries on pension liabilities. It is a sticky kind of situation, the technical problem which is the over-ownership that never helps stocks and this is one bit of over-ownership, which is persisted for some time. It is quite conceivable that as you have seen through the last couple of months, while this whole sticky inflation, rising interest and rising deposit rates plays out for a bit longer, banks continue their underperformance. My own sense is that through the next six-nine months, it is probably an opportunistic time to start looking at some of the bank stocks. They will not probably deliver near-term outperformance but once you are resigned to that and you say I am playing for 2012 or 2013, and this is the opportunity through the weakness of the next few months to accumulate top quality banks and then sit on your hands for a year, that might be a prudent way to look at it. But I don