Where would you put the entire PSU pack? Is it going to be a pool which is going to give you parabolic returns, is it a pool which is going to give you low return or no returns? The government’s conviction about Air India privatisation and how quickly the disinvestment secretary corrected the convenience fee faux pas in IRCTC in less than 12 hours, what is your view on PSUs?
Yes, that is a positive aspect of that entire incident. PSUs are wonderful companies — mostly monopolistic or duopolistic. They are dominant players in the economy and their underlying value is very high if there is a bit of entrepreneurship and hands off approach to these companies.
The PSUs as a basket should give at least the market return. I do not think it will underperform the way it underperformed in the last 10 years and there is a good chance that it might even outperform because the valuations have been completely pessimistic even till date so as the economy recovers because they are mostly not export oriented. They are proxies to the Indian economy. I think they will do well if the policy remains encouraging and there is no interference in their affairs. I am quite sure eventually some optimism will come back in their counters. A little bit of rerating from 7-8 PE multiple to a 9-10 can take care of their market performance or even a bit of outperformance.
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What should be the best way to participate in the financial space? Currently there are two very diverse views in the market. One view is supporting the comeback in PSU banks and one view is favouring technology and fintechs?
Fintech has a niche typically in unsecured lending and mass lending — 5,000, 10,000, 100,000 buy today pay tomorrow or buy now pay later. Basically it is unsecured. The moment you talk about security, you have to go on the ground and become non-digital; taking care of the collateral is a non-digital process mostly. So, that is a one small segment.
I do not think mainstream banking is yet threatened by fintech companies broadly. In mainstream banking there is a public sector, there is a private sector. In the next two-three years, when the economy recovers and the credit cycle changes and credit cost cycle goes in the reverse, public sector banks will also do well. But they are a trade in the sense they are good till the recovery process is complete. That may be the next two years-three years. When the credit cost is the lowest, they will show the highest profit but after that, they will keep losing the market share to private sector banks. But private sector banks are not as cheap as the public sector banks right now.
So if I want to buy and hold for 10 years, I would rather buy private sector and at the margin some public sector banks like the big ones one. They are trading at below one book and then after that, real finance sector game is going to be private sector banks and that too some of the newer private sector banks where book is very small say 20,000, 30,000, 40,000 crore. They can grow at a rapid pace in a given opportunity.
