Will buy ICICI, HDFC Bank in correction: Religare‘s Teli

He said that there could be some more profit-booking in PSU banking stocks. “In public sector undertaking (PSUs); there is more correction on the downside likely but the good thing is that two or three banks that have already reported, we have seen a good trend as far as numbers are concerned on the asset quality side,” he said.

His picks in the PSU bank stocks are Bank of Baroda, Canara Bank and Oriental Bank of Commerce. “We also look at State Bank of India (SBI) but the qualified institutional placement (QIP) remains an overhang,” he added.

Below is the interview of Siddharth Teli, Banking Analyst, Religare Capital Markets with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: Analysts expect a big selloff and considering that the Bank Nifty is below 200 day, 50 day, technical analysts were calling for a short in that index. Do any of them present a buying opportunity if they were to fall further?

A: In terms of currency, India has performed much better and as that has held well, bank stocks have not fallen as much but we will see some selloff. In terms of buying opportunity, we are still more on the cautious side as far as banks are concerned. So, our key stocks to buy would still be HDFC Bank. It now trades at 15 times FY15 earnings and it is at the lower end of the price band and offers more safety.

If you see 5-7 percent correction in ICICI Bank – that is another stock we would be looking at because at those levels it becomes interesting and if retail growth were to surprise on the upside plus if asset quality holds steady then my sense is those two could be the good buying opportunities in the private space. In public sector undertaking (PSUs); there is more correction on the downside likely but the good thing is that two or three banks that have already reported, we have seen a good trend as far as numbers are concerned on the asset quality side.

So, we are to see some of the big guys report but numbers have been inline with what they were suggesting and asset quality in terms of gross non-performing loans (NPLs), we have seen a sequential decline. So, if stocks fall and we see a trend of results wherein asset quality is now a stabilizing albeit at higher levels of slippages and restructuring then that is where we would see some opportunity.

So, our picks over there would be Bank of Baroda, Canara Bank and Oriental Bank of Commerce (OBC), are the banks we would be looking at. We also look at state Bank of India (SBI) but the qualified institutional placement (QIP) remains an overhang.

Latha: What is your view on UCO Bank?

A: I do not cover the stock and that is relatively smaller one, so not easy to comment but the headline gross NPL numbers were down on sequential basis but you have to adjust for any sell down. So, slippages number is what we will be looking at. We have not seen any meaningful decline.

I do not know exactly what the slippages were quarter on quarter. Therefore, I wouldn’t want to comment over there, but we would be waiting for names like Bank of Baroda, Canara Bank, Bank of India, most of these guys have said that their slippages will come down but restructuring remains high, so we will have to a bit cautious over there. So, our picks here will be better capitalised banks more so after the dividends that have been announced by these PSU banks.