We believe PSU banks would continue to underperform at least in the near term.
We generally see during the uncertain times that people tend to opt for liquid assets and the recent figure of the surge in deposits shared by the SBI reaffirms the same. And, we feel the health asset would also join the list this time as they’re now realizing the importance of having an insurance and health plan for their well-being," Ajit Mishra, VP Research at Religare Broking said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: The government announced Rs 20 lakh crore fiscal package, but the market has not taken it positively. Your thoughts?
In the second round of stimulus package, the government has announced a host of measures for troubled and vulnerable sectors like NBFCs, real estate, MSMEs and agriculture. These measures are likely to have a positive impact on these sectors and help them in tiding over the economic downturn in the medium term. This may lead to some recovery in the markets in the coming sessions.
However, the biggest worry at this point is the nationwide lockdown which has resulted in a severe slowdown in economic activities. These things can get back on track only if the COVID-19 cases start to recede. Moreover, weak earnings and cautious outlook by corporates is also weighing on investor sentiments. At the same time, muted global cues have also added to the nervousness. In such a scenario, the possibility of sustained recovery seems unlikely.
On the benchmark front, Nifty would face multiple hurdles on every rise and only a decisive break above 9,700 would change our bias. In case of decline, it has the next critical support at 8,950 and we may further slide if it fails to hold the same.
Q: After reading and analysing the measures announced by the government so far, which stocks will benefit the most and where should one park his/her money?
The stimulus package by the government covers many sectors like NBFCS, real estate, agriculture, fisheries and more importantly MSMEs.
We believe Banks and NBFCS would get support through increased liquidity (as the measures would help MSMEs pay their dues to financial institutions) and therefore stocks like Axis Bank, M&M financials, HDFC Ltd, ICICI bank could benefit. In the agriculture and allied sectors, we are positive on stocks like Coromandel International, Godrej Agrovet and Rallis India. Despite some measures favouring the real estate sector, we are not very positive on this space as the sector was already facing liquidity and higher inventory concerns.
Q: Your thoughts about the impact on PSU banks.
In the recently announced measures, the government has pushed for credit support to various businesses. And, PSU banks are likely to lead the charge in providing credit, which has raised fears of further deterioration of asset quality. In such a scenario, we believe PSU banks would continue to underperform at least in the near term.
Q: Will you change your FY21/22 earnings estimates after these Rs 20 lakh crore measures or wait till the opening of full economy?
While the recently announced moves are positive for the economy, it would be too early to change our earnings estimates. We would wait for more updates on the easing of lockdown conditions as that would eventually lead to a recovery in economic activities.
Q: Do you think people could shift their asset allocation from physical assets (land, property, gold etc) to liquid and healthy assets?
We generally see this trend during the uncertain times that people tend to opt for liquid assets and the recent figure of the surge in deposits shared by the SBI reaffirms the same. And, we feel the health asset would also join the list this time as they’re now realising the importance of having an insurance and health plan for their wellbeing.
We thus see the high possibility of fund flow towards sectors like banks and insurance thus stocks like HDFC Bank, HDFC Life Insurance, ICICI Bank, ICICI Prudential Life Insurance, Kotak Mahindra Bank and SBI life Insurance would benefit in the medium to long term driven by strong brands, steady performance, good long term growth prospects and healthy balance sheet.
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