Bullish on SBI; BoB met our expectations: Sandip Sabharwal

In an interview to CNBC-TV18, Sandip Sabharwal of Prabhudas Lilladher shared his outlook on banking stocks and the ongoing earnings season.

He is positive on State Bank of India (SBI) among the public sector banks. "It looks pretty attractive and that could do well going forward. We could see the worst of the non performing asset (NPA) picture getting through now," he said. Meanwhile, he added that Bank of Baroda’s Q4 results have been in-line with their expectations. The state owned bank’s Q4 net profit tanked more than 32 percent year-on-year to Rs 1,029 crore. Its profit before tax plunged more than 54 percent to Rs 546 crore. "The worst seems to be getting over and a lot of these banks are pretty cheap in terms of any valuation parameter one would look at. So, I am not too negative at this stage," he adds in an interview to CNBC-TV18. Below is the edited transcript of Sabharwal’s interview to CNBC-TV18. Q: What is your take on Bank of Baroda? A: Bank of Baroda (BoB) results are more or less in-line with what we had seen with a  large number of public sector bank. Finally, they have got down to recognising the bad debts in their books, so that is something which is happening. However, looking forward my guess would be that we could be seeing the worst of the asset quality getting over for most of these banks. Since most of these banks have significantly higher SLR holdings than what is required and the way bond yields are moving, my view is that we should see that 10-year bond move over eventually for the next few days to 7.3-7.4 percent range. So, as that happens, that creates a significant buffer which could be used by these banks to cut down on their non-performing-assets (NPAs).
 
The worst seems to be getting over and a lot of these banks are pretty cheap in terms of any valuation parameter one would look at. So, I am not too negative at this stage. Q: Are you picking up any bank at all? A: Among the PSU pack we are looking at State Bank of India (SBI) because that looks pretty attractive and that could do well going forward. There also, we could see the worst of the non performing asset (NPA) picture getting through now. Q: How have you looked at the earning season so far? What would count as your hits? A: The hits have been sectors like telecom where there was an expectation that we could see some bump up in terms of the reported earnings and that has actually happened because expectations had gone down significantly over the last one year. So, that has been one sector that has done well. Some of the auto companies have done well and that was expected because we were expecting raw material pressures to come down which would boost the profitability. So, that has been another positive. These two would stand out as the bigger positives in terms of what we were expecting and the surprise has been the asset quality in terms of the private sector banks. There, the asset quality has held on much better than what I actually expected.