On current quarter earnings so far: It is always difficult to predict in the short-term. And yes, so far whatever results have been declared, majority of them including from private sector banks have been below street expectations. But this is probably a pause in a longer term bull market. We are seeing liquidity being pumped into the economy as well as into the market. We are seeing interest rates being cut at the borrower level. The monsoon has been good after two years and that will support recovery in economy. Our exports have started bottoming out and in the days or months to come, should start performing well. So, if you take a 3-6 months view, probably it is going to be challenging. But, if you take a three-year view then certainly this is the market where you can still do a bottom-up stock picking.
For the private sector banks, what is your positioning now? If you are an optimist, you will say at least bank is coming up transparently and disclosing its problem areas. If you are pessimistic, you can see that the acceleration has increased so much and what will happen in the future. My guess is that in private sector banks, optimists will prevail over pessimists. The banks are now opening up and declaring their stress quite transparently. This will one, help them not to keep on ever-greening these non-performing assets (NPA) and number two, they will go after recovery. We have seen many of the private sector banks using the asset reconstruction companies (ARC) route and my guess is that it is far better to recognise problem and deal with them. At the end of the day, the private sector banks are probably going to recreate current private sector banks over the next 3-4 years in terms of their growth rate. So, we continue to favour private sector banks on a bottom-up basis.
This is the market of a stock picker. It is no longer a top-down sector call market. Second, this is the market where, courtesy good monsoon, there is rural economy revival. So, anything linked with rural consumption, rural investment, agriculture should do well. A lot of stocks have already run up in anticipation, so one has to be careful in picking up stocks.
The Seventh Pay Commission, monsoon, improvement in liquidity, cut in interest rates, these are all factors, which will push consumption on the higher side, so anything which is linked with the consumption, be it white goods and consumer electronics, be it cement and materials, be it paints, chemicals, furniture fittings kind of this, be it automobiles and auto components, anything which is linked with the domestic consumption cycle, we are overweight.
How would you look at the non-banking finance company (NBFC) space? It is worth keeping the faith in NBFC because one, the public sector banks are constrained by capital. That will restrict their growth ability. The private sector banks also are focused on certain businesses, which lifts the niche area to the NBFCs. Availability of capital for NBFC sector is increasing, competition is decreasing from PSU bank and the niche areas they are able to exploit. They are also able to invent into newer areas of ARC.