Enam Holdings’ Sridhar Sivaram bullish on financials; says, falling credit costs leading to profitability

Sridhar Sivaram expressed bearishness is on insurance. Justifying his stance, he said, “We have been bearish on insurance because they don’t sell protection

Sridhar Sivaram, Investment Director of Enam Holdings, is bullish on the company’s financials, with his preferred picks being private and large PSU banks. “We have been long on PSU banks for a while, given the fact that their credit costs continue to fall. In the private sector, we have seen credit costs falling substantially, while in PSUs, it’s a work in progress,” he said, in an exclusive conversation with CNBC-TV18.

Sivaram added that as credit costs fall, profitability increases. “The profitability of some of the large PSU banks has increased 60-70% predominantly due to credit costs, and not just the top line,” he emphasised.

Deposit woes

However, he did raise a concern: the scramble for deposits. “In the last two quarters, loan growth has been faster than deposit growth. Everyone played on the buffer they already had, but that buffer has ended. Hence, the scramble for deposits.”

Sivaram also spoke about banks’ exposure to Adani group projects at large and infrastructure firms in general. “The banks have learned their lessons from the past and have been conservative as far as lending is concerned. Therefore, I don’t see any issue with regard to the banking sector’s infrastructure lending to this group (Adani group) or any other group.”

Speaking about banks’ lending to large infrastructure projects such as airports, he said, “Airports, in general, are booming. Everyone wants to invest in airports, as they are profitable businesses. I’m not concerned about banks because their collateral is the cash flows of the underlying assets, Hence, there’s no issue with respect to debt. However, equity is something the market will have to figure out.”

Sectoral outlook

Sivaram expressed bearish sentiments on insurance. Justifying his stance, he said, “We have been bearish on insurance because they don’t sell protection; only 10% of life insurance companies sell protection; the rest, everything is some kind of tax arbitrage.”

For infrastructure companies, though there are many projects in the pipeline, he sees them as a hard buy. “Infrastructure companies are difficult to buy considering corporate governance and size is an issue. Financials, ancillary or commodities are easy sectoral picks,” he said.

Sivaram is underweight on the IT sector and told CNBC-TV18 that he will wait to go long on IT. We would want to see how the guidance on next year emerges. “Generally, when the West goes into a recession and sees slow growth, discretionary spending is sharp. We will wait and play domestic for now, as there are many opportunities.”