The upbeat financial scenario in the country sees banks posting a steady improvement in asset quality. This will be important in sustaining the positive environment, says Ajit Mishra, VP - Research at Religare Broking.
"Investors, however, should remain selective in this space and stick to large private banks as they have a strong brand name, stable balance sheet and healthy asset quality,” he says in an interview with Sunil Shankar Matkar of Moneycontrol. Excerpts from the interaction:
Moody’s has upgraded Indian banking system’s outlook to stable from negative. Does it mean that problems faced by the banking system are behind us?
They are not completely out of woods, yet their position has certainly improved, thanks to the ease in loan growth concern and receding fear of worsening NPAs situation. Going ahead, we believe the banking sector will pick up the pace and drive credit growth, with the revival of the economy.
Also, an improvement on the asset quality front is a positive sign. However, investors should remain selective in this space and stick to large private banks as they have a strong brand name, stable balance sheet and healthy asset quality.
What is your reading on the September quarter earnings based on the results declared so far?
The September quarter earnings have been a mixed bag so far wherein several companies have reported margin pressure due to high commodity prices and supply-side issues. Most IT companies have declared their numbers and the results have come largely in line with the expectations. However, they are also facing attrition challenges.
In absence of any major event, earnings would remain in focus and we recommend maintaining a positive-yet-cautious approach and using intermediate corrective moves to gradually accumulate quality stocks.
Do you think the Sensex can fall below 60,000 or shoot past 65,000 by Diwali?
The BSE Sensex has retraced marginally of late and is trading closer to the 60,800 zone. I feel it's a healthy correction after a phenomenal up move and expect the index to consolidate further. On the downside, a decisive breakdown below 60,000 may result in a further slide towards the 58,500 zone, else the uptrend would resume.
Economic parameters indicate a revival, which is a positive sign, however the ongoing Q2FY22 earnings are likely to dictate the trend in the near future. Investors have high expectations and any major disappointment can lead to a correction. Besides, the news of further deterioration in the Covid situation globally might also dent the sentiment.
Morgan Stanley said India's capex-to-GDP ratio is set to rise and employment prospects will be lifted. What is your take on this?
With the announcement of a 34.5-percent rise in the capital expenditure in the Union Budget for FY22, the government had set the ground to boost employment and spur growth after the pandemic. And, we expect a significant increase in spending on sectors like infrastructure and power to further expedite the recovery.
Besides, private capex, which remained subdued due to lack of demand during the Covid, is also likely to gain traction, with the reopening of the economy and a noticeable revival in the aggregate demand. We feel the planned initiatives and their timely execution would certainly help in achieving the objectives.
Auto, metal, realty, power and PSU stocks were the real stars in the last one month, reporting double-digit gains. Is it the time to turn cautious over these sectors?
These sectors see improvement in demand on the back of unlocking and the upcoming festive season. Investors should use intermediate dips to gradually add stocks from the auto, metal, realty and power space but maintain extra caution while selecting stocks from the PSU pack.
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