See no hope for PSU banks in 2013: Kotak Institutional

MB Mahesh of Kotak Institutional Equities feels that given the challenging environment, it will be difficult for the Bank Nifty to outperform the broader market. "We have had a fairly good run on the banking sector in CY12, but it looks challenging to sustain the out performance this year," he added.

He feels pressure would be more on public sector banks than private banks, as they have a large exposure to corporate assets, where the bulk of stress is. Here are edited excerpts from Mahesh's interview to CNBC-TV18 Q: We are seeing seminal weakness in the Bank Nifty itself over the past several weeks. Do you think this will be the year of banking sector out performance? A: We are cautious, rather than optimistic at these levels. We have had a fairly good run on the banking sector in CY12, but it looks challenging to sustain the out performance this year. The broad issues of the last couple of years remain. If you look at the third quarter numbers, you can see stress coming in the large corporate portfolios too. In this environment, it would be very difficult for the Bank Nifty to outperform the broader markets. Between public and private banks, the divergence would probably continue at least for the next few quarters as PSU banks have got a lot of large corporate assets, where the bulk or stress is.  However a bigger problem is emerging on the growth side and the focus will probably shift to that side of the balance sheet in probably another two-three quarters. Q: Assume bank licenses will be given to deep-pocketed corporates; it is both easy and lucrative for them to perhaps go the inorganic way. What is your view on that? A: If you look at the players with smaller balance sheets, most of the banks at this point of time are reporting fairly healthy numbers. So I really don’t see a very strong case for a forced merger and acquisition (M&A) case out here. Will there be consolidation between these regional players? We will wait and watch. Let the bank licenses come through, then we will see how the condition is evolving before we take a call as to whether these entities will go ahead and look at some acquisitions down the line.