Bet on safe havens like HDFC, HDFC Bank, ICICI Bank: Quant

Given the macro economic environment is shaping up, there may be further slippages as far banks as concerned, cautions Nitin Kumar of Quant Broking.

The possibility of further liquidity measures from the Reserve Bank of India (RBI) cannot be ruled out considering the way the rupee is behaving and this is turn is taking a toll on banks, he told CNBC-TV18 in an interview. RBI’s recent financial stability report says gross NPL at the systemic level will increase to 4.4 percent or near about even in severe risk case.
Domestic investors are not much positive on public sector lenders, so he advices investors to park funds be in safe havens like HDFC, HDFC Bank and ICICI Bank. Below is the verbatim transcript of Nitin Kumar’s interview on CNBC-TV18 Q: Do you think now this is going to be a phenomenon across all banks and that Yes Bank and Axis Bank are only the vanguard?
A: The way the cost of funds for these banks are going up and how the macro environment is shaping up we may see increased slippages from these banks. However, I think the correction looks to be very sharp and earlier the street was expecting that the RBI measures may be temporary but with the way the rupee has behaved one cannot rule out even the possibility of further measures which is taking a toll on the banks today. Q: So what are you recommending on bank shares? Will you short them at the current juncture?
A: Difficult to say. I would rather say be in the safe havens like HDFC and HDFC Bank. We like private banks in general but amongst them we are more positive on ICICI Bank and HDFC Bank. Q: Banks are very over owned particularly the private sector banks. In your conversation with any of your institutional or sales people, are you hearing of a lot of investors trying to offload or book their profits in the banks?
A: Of late large chunk of the selling that has come in because of the Foreign Institutional Investor (FII) clients and they have sold into the private banks also. On the PSU side we see that the shareholding over a period of time has come down in many banks, including State Bank of India (SBI). And domestics have not been much positive on the PSU story in general so they remain invested more into the private banks. Q: Are you expecting more selling to take place from investors in the banking space, is that what you are recommending?
A: One cannot rule out further selling even if we look at the RBI projections, also for gross NPL. In the recent financial stability report, RBI said that in the severe risk case even in that scenario gross NPL at the systemic level will increase to 4.4 percent or near about. However the trends that we have seen in some of the PSU banks and the smaller PSU banks in general we are likely to see possibly a higher gross NPL ratio.
So within the private banks though the trend so far still remains stable, but what remains critical is the guidance going ahead. What is affecting the sentiment is the rise in the CDR cases and more and more names coming up.