People walk through a State Bank of India branch in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)

Why Emkay Global Is Not So Bullish On Public Sector Banks

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Investing in public sector bank stocks should be avoided at present as they are losing market share to their private sector peers, according to financial investment management firm Emkay Global’s Dhananjay Sinha.

“Market share for public sector banks will diminish over the next three years or so as private lenders are grabbing good quality assets,” Sinha, head of research, economist and strategist, Emkay Global Financial Services, told BloombergQuint in an interview.

We remain underweight on PSU banks in the medium to longer term.
Dhananjay Sinha, Head-Research, Emkay Global Financial Services

Here’s what else he said on the banking sector:

  • Intensity of recognition of bad loans can increase now.
  • Private lenders have grabbed good quality assets, thus they will keep growing much faster.
  • Market share for public sector banks will diminish over the next three years or so.
  • Recoveries in bank stock prices should be used to exit them.
  • 10-year bond yields can breach 8 percent in the second half of this year.
  • PSU banks will have to contend with mark to market losses due to rising bond yields.

View on other sectors:

On Telecom

  • Haven’t been very bullish on the sector.
  • Sector grappling with high debt levels and intense pricing competition.
  • It will still be some time before Reliance Jio's disruptive pricing interventions weighs out.
  • Grabbing of market share through price action will continue cos the rate at which the market is expanding is lesser than before.
  • Intensity of competition is still very high.
  • Companies will sell some assets or liquidate debt.
  • Do not see a meaningful or a structural upliftment from this set up for the industry.

On Retailers

  • Volume growth and demand conditions for the retail space, especially in the apparel space is pretty strong.
  • Retail companies will still do well despite Flipkart-Walmart deal.
  • Positive on retail sector.

Mid Caps And Small Caps

  • Cautious on the broader markets.
  • Concerns on mid-cap valuations will continue in the foreseeable future as liquidity conditions remain tight.
  • Have to be careful about fresh exposure in mid-caps and small-caps.
  • Large-cap space will outperform mid-caps and small-caps.

Karnataka Elections

  • Importance of elections critically linked to market sentiment.
  • Results in Karnataka will reflect in the momentum in other upcoming state elections and 2019 general elections.
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