New NPA rules are structurally positive for banks in the long term
Manish Gunwani, CIO Equity Investments at Reliance Mutual Fund
Feb 16, 2018 | Source: Moneycontrol
The new non performing asset (NPA) rules introduced by the Reserve Bank of India (RBI) earlier in the week are positive for the banking sector in the long term.
All the earlier schemes like S4A, SDR, CDR, JLF, etc, stand withdrawn with immediate effect.
Banks need to make appropriate disclosures in their financial statements, under ‘Notes on Accounts’, relating to resolution plans implemented.
We are very positive on the new rules introduced by the RBI. Although there could be near term impact on earnings. It would lead to faster recognition of bad loans but you could argue that valuation multiple should expand a bit now.
Extreme cycles of NPL that we use to see should reduce now because the resolution will become faster, lending becomes more transparent. If one banking is making one company an NPA then other banks have to also do it.
On the results, the effect of strong global growth is playing out. Generally, results have surprised on the upside. We are overweight ion the cyclical basket compared to the defensive basket.
From 3-5 years perspective, double-digit gains should be on the cards. There are more pockets of value in largecaps but typically from a bottom-up basis there is some value in midcaps.
On the LTCG tax imposed in the budget, there is a bit of confusion because the grandfathering Claus is not very easy to understand. I would be surprised if the effect lingers on till March 31.
If the markets cross the January 31st level by a big margin, it will act as a bit of a headwind and we could see some bit of profit booking. We are trading in a balanced market and traders should remain invested for the next 2-3 years.