What is the sense that you are getting when it comes to overall earnings from the financial space?
This time it was relatively better because the Supreme Court order had come in regarding the removal of NPAs where they restricted declaring NPAs. In general, the financial sector was reporting better numbers than earlier but I feel in this quarter, there will be a substantial change. Bajaj Finance has already come out with a warning. We have seen a few other banks talk about how they need to provision more for retail loans. We are going to see SME business loan summaries at the end of this month and I do not think that is going to be nice in any meaningful way.
A lot of the metros and a lot of states have had harsh lockdowns. I expect a lot of businesses will need help and this time we do not get that RBI or government led moratorium of any sort. So financials are going to be under stress in the next three to six months. I would advise people to be careful when they go into financials. They are reasonably capitalised and it is not a problem of solvency but growth will come down quite substantially for the next six to eight months. So I would say tread warily here.
Would there be a case to switch out of a top private bank like HDFC Bank etc and get into top PSBs?
There is only one top PSB and that is SBI. Everybody else is several notches below in quality. The results were a little bit of a disaster. Despite assurances, , which is the second largest PSB, is nowhere close to SBI.
SBI has a tremendous hold on the banking sector and is a far more aggressive bank than most of the others. I would say it makes sense if you want to have a little more SBI today than perhaps the private banks. But in general I would avoid the whole financial pack. There are multiple reasons for this. If inflation becomes meaningful in the next few months, bond yields will go up and that means prices of bonds they hold will go down. There is also the potential outcome of the lockdowns which will be known only in the next quarter.
Also sometimes the story plays out in the charts first and the fundamentals later. The fact is people are not buying them and there are enough knowledgeable people on this planet who probably know a lot more than us. So, there is a chance that more trouble is brewing there. I would just be low on financials until the smoke clears if you may.
