Jay Prakash Gupta, Founder, Dhan, thinks consolidation and recapitalisation of PSU banks, setting up of a "bad bank” to clean up NPAs and the government's capital expenditure programme will benefit the banking sector in the long run.
Gupta, who has rich experience in the financial sector, says PSU banks will likely outperform private lenders over the next year but investors should adopt a gradual approach while investing.
In an interview to Moneycontrol’s Sunil Shankar Matkar, he says investors should also keep an eye on crude prices, inflation, Q2 earnings and the RBI’s monetary policy. Edited excerpts:
After a stellar run in September, do you think markets will continue to perform well in October as well?
October has historically been the most volatile month and the most feared one, as many of the financial market sell-offs have happened or have begun in the month of October.
Some of the primary factors which contributed to the stellar run in September were lower interest rates, anticipated better Q2 corporate earnings and continued liquidity infusion which helped the Sensex claim historic level of 60,000 in September.
Going ahead, rising crude oil prices, higher inflation numbers, kick start of Q2 corporate earnings, RBI’s monetary policy, and concerns related to US debt crisis could be some of the key triggers an investor should keep an eye on.
The RBI's monetary policy meeting is to be held from October 6-8. What are your expectations and do you foresee any sectoral measures?
Inflation and increasing crude oil prices are some concerns. The RBI’s efforts, so far, to help economy recover has been commendable, I think the RBI should not be in a hurry to raise rates.
The economy is gradually getting back on track. A lower interest regime will certainly help sectors like real estate, auto, consumer lending companies and banks during the festive season. Close monitoring of inflation numbers and status quo on rates till December is what I am expecting from the RBI in the forthcoming policy meeting.
Do you still think a possible third Covid wave poses a risk to Indian equities? What are other risk factors that can puncture the momentum?
We are one of the few countries which have shown such remarkable execution of the vaccination drive. Unlike the western world, India has so far been successful in controlling the third Covid wave. Markets are driven by sentiments and anticipated growth. The sentiment, so far, has been buoyant. Various measures by central banks to infuse liquidity in the economy and improved earnings from companies have been driving markets in India and across the globe.
Whenever markets sense negativity setting in, the momentum can get derailed sooner than expected. Some of the domestic factors which can puncture the current momentum could be slightly lower than expected domestic growth and corporate earning numbers for Q2, rising crude oil and coal prices resulting in higher inflation in October.
In terms of global factors: roll back of bond-buying programme by the US Central bank, popularly referred to as Fed tapering, rise in unemployment levels in the US, non-containment of Evergrande like crisis or any unanticipated event in any part of the globe having a contagion effect can impact markets negatively.
Is it time to be more cautious or go all out while investing?
India has been one of the best performing markets so far. Markets have run up far ahead of the earnings or sales growth number of companies in various sectors. One needs to be cautious in picking stocks from current levels. Investors should avoid going overboard, especially the new entrants who have started investing in last 15-18 months. It is important not to get carried away with the rally and jump into the bandwagon impulsively at current levels.
Brent crude futures have hit $80 a barrel. Should one be worried?
We are a crude oil-importing nation. India imported $62.7 billion worth of crude in FY20-21 when oil prices were around $52-$55 and lockdown was prevalent in most part of the year. Now, when crude oil prices are around $80 and the economy is getting back to normal, crude import bill is likely to exceed $100 billion in FY 21-22.
Higher crude prices impact several industries and fuels up food inflation. Equity markets have negative correlation to crude prices and it is a concern.
The government has taken various measures to support the banking sector. Should one take a bullish view of banking and financial services? Is it the time to go big on PSU banking space or stick to private banks only?
Various measures from the RBI and the government in the last 18 months have benefited the banking sector immensely. Lower interest rates resulted in a surge in retail loan segment, primarily auto, consumer, housing and personal loans, resulting in improved Net Interest Incomes of banks.
Some of the positive measures like consolidation and recapitalisation of PSU banks, formation of “bad bank” to clean up NPAs, the capital expenditure programme of the government will benefit the banking sector in the long run.
PSU banks are likely to outperform private banks over the next 12 months. I would advise identifying quality names and invest gradually over the next 12 months rather than going overboard at present levels.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.