Dawnay Day +ve on banking in long-term

Sheshadri Bharatan, Dawnay Day AV Financial Services said markets are in a downward trend. “The next couple of months would be painful for the market and to make matters worse if the government decides to announce elections in January along with the quarter results because this December quarter results would not be very good and that’s where we feel that markets might go down to October levels.”

He believes that most of the banks might cut down their credit growth and that is one factor that might affect banking stocks. For a longer-term view according to him, banks which have very higher Current Account and Saving Account (CASA) deposits - banks like Punjab National Bank (PNB), State Bank of India, HDFC Bank, Axis Bank are banks that one would look for into invest at least in a years time. "Because as and when the market turns around the Indian economic growth story will continue, Gross Domestic Product (GDP) will grow above 7% and next year we might grow above 8%", he added.

Here is a verbatim transcript of the exclusive interview with Sheshadri Bharatan on CNBC-TV18. Also watch the accompanying video.

Q: We have sold off now pretty much for five consecutive days where do you sense that value zone will come in, last time when you had to go all the way down to about 2,200 odd levels. Do you sense that we would retest those lows?

A: Looking at the newsflow from global markets, there are no major announcements coming out of the G-20 Meet. The Japanese economy, Korean economy is going into recession, American Q3 was negative, and the International Monetary Fund (IMF) forecast is not very benign. So, all factors put together plus in the month of October we saw commodities meltdown so companies which should have inventories would have to book losses in commodities. Also there are talks of banks; some banks might have delinquencies in credit that they had given to earlier also. So all said and done the newsflow is negative, I think markets are in downward trend.

Q: What do you suspect? Do you think the index will emphatically go below the October lows would you be buyers as we approach that 2,252 mark or do you think that you are going to get good opportunities?

A: Let’s look at the scenario for next couple of months. I think at this point of time, we have buyers strike not many buyers are coming forward be it institutional or retail investors willing to buy into this market because everybody feels that we might see some more downward levels where we can enter the market.

Having said that, I think the next couple of months would be painful for the market and to make matters worse if the government decides to announce elections in January along with the quarter results because this December quarter results would not be very good and that’s where we feel that markets might go down to October levels.

Q: What in your sense is the key event that is spooking the market? Do you sense that it is further negative economic news redemptions by hedge funds going into the end of the year and do you sense it would bring about some sort of a turnaround or events that the markets are anticipating possibly in terms of an interest rate cut or some sort of monetary action?

A: If you look at the events in last couple of days, people expected that there would be some kind of announcement coming out of G-20, there can be some kind of coordinated worldwide economic stimulus which would revive the economies that was one stimulus people expected. Obviously, the kind of repo rate cuts that we have seen and the benign inflation figure that came last Thursday, so people expected that we might see some more rate cuts and banks would cut their Prime Lending Rate (PLRs) etc. which has not happened. So, there again the investors have been disappointed.

Q: We have seen a significant amount of fall coming in the private sector bank space any reasons why they got punished in the last one week, otherwise well known names like an Axis or an HDFC Bank or Kotak Mahindra Bank and secondly would you be buyers of public sectors banks, today they have actually joined the list of laggards?

A: Today there was some report that ICICI Bank might cut on their credit growth from 30% to 15%, so most of the banks might cut down their credit growth and that is one factor, which might affect the banking stock. Second is delinquencies, there are talks that the credit that has been given in the past also might see some kind of delinquencies be it personal loans, home loans etc. So, I think there is a case of these stocks coming under selling pressure also yesterday expectations of rate cuts, which has not happened so these stocks went under hammer. But having said that if you look at a longer-term view, banks which have very higher Current Account and Saving Account (CASA) deposit banks like Punjab National Bank (PNB), State Bank of India, HDFC Bank, Axis Bank are banks that one would look for into invest at least in a years time. Because as and when the market turns around the Indian economic growth story will continue, Gross Domestic Product (GDP) will grow above 7%, next year we might grow above 8%.

The first sector which will benefit out of growth in economy would be banking sector. So anybody who is betting on India story has to participate in banking sector. At this point of time, we are witnessing broad selling across the markets, as and when market shows some kind of stability, I would not say recovery we might see investors coming back into the banking sector again.