Business
PSU banks still have room to run, but selectivity is key: Mayuresh Joshi
Responding to ET Now on whether PSU banks still stand out within the banking pack, Mayuresh Joshi, Head Equity, Marketsmith India said, “Our take is that valuations still remain relatively inexpensive for a whole host of PSU banks and the kind of numbers that they have probably posted and the commentaries that have surrounded a large part of their financial performance in Q2, it gives us the confidence that the next few quarters will be relatively better as well.”
He, however, flagged deposit growth as an important variable going forward, especially in a falling interest rate environment. “The only thing that is probably expected to create some element of stagnation is how deposits probably are expected to grow specifically in a situation where interest rates are coming down and therefore deposit accretion is going to be extremely key for the banking sector as a whole,” he noted. Joshi added that PSU banks enjoy an edge due to their sticky deposit base, which should help keep the advances-deposit ratio healthy. He also expects asset quality pressures to remain contained, aided by already strong provisioning buffers. “Any recoveries and upgrades that probably happen only add to the bottom line,” he said, while reiterating that capital adequacy across PSU banks remains comfortable.
Against this backdrop, Joshi believes PSU banks could outperform large private lenders over the next few quarters. “Our thesis is it should be a relatively better performance of the Nifty PSU banks compared to the large private banks as we head into the next few quarters and therefore selectively remain constructive,” he said. Among preferred names, he highlighted “largecaps, State Bank of India; within midcaps, Bank of Maharashtra, Bank of Baroda,” which he said are held across local and global portfolios.
On the possibility of a meaningful improvement in return ratios, particularly ROA moving from the 1% mark to 1.2%, Joshi sounded optimistic. “There is a strong possibility and again, all these factors might actually lead to balance sheet actually expanding at a very decent pace,” he said. While potential PSU bank mergers remain an external variable, he believes the overall trajectory is positive. “Gradually over the next few quarters as there is substantial improvement in terms of the balance sheet both from a qualitative and a quantitative perspective as well both ROAs and ROEs should probably expand,” he added, pointing to a favourable DuPont-led improvement in return ratios over the medium term.
Shifting to individual stocks that have seen sharp corrections, Joshi struck a cautious tone on Kaynes Technology and InterGlobe Aviation. “No, so both wait and watch purely for the reason that there has been a lot of news flow surrounding both these stocks at the current juncture,” he said. On InterGlobe, regulatory uncertainty remains the key overhang, despite management commentary around schedule cuts and revised revenue expectations. “What really comes out from regulatory action perspective is a large unknown for the markets,” Joshi said, even as he believes much of the downside may already be priced in.
For Kaynes, upcoming quarterly numbers and margin visibility will be critical. “Valuations are not cheap even at this juncture,” he cautioned, adding that clarity on operating leverage, margin expansion and bottom-line growth is still awaited. “That remains unknown unless the ODM component starts coming higher for Kaynes and even its peers,” Joshi said, reiterating a wait-and-watch approach until more evidence emerges over the next few weeks.
