Growth will return to well-managed private banks & NBFCs post Covid: Centrum Broking

The markets are steady because of what is happening in the US where there is incessant money supply, says Anil Sarin, CIO-Equities.

What do you make of the market recovery? Globally, cases are rising. The US as well is seeing a continuous rise in cases raising questions when they will emerge out of this recession. When it comes to India, are we looking inward? Are we looking at our own statistics or are we concentrating purely on the fact that rural will bring us out of the misery?
You were talking about tractors and the other rural-related numbers being better than expected. Even some of these other companies which have operations both in metros as well as in rural areas are reporting that apart from the metros, there is good demand. If you talk to a retail company, they say here is a good amount of footfall. It is not as much as it used to be but yes, the buying per person who comes in is higher. So there is an intent. So clearly India is divided into two or three categories. So in certain areas there is a strong demand impulse and you can even call it pent-up demand. One has to be selective while looking at investing in this market. Those companies that are going to benefit from rural or those who have a national footprint where there is a higher proportion of rural certainly would perform better in the short term.

If the spike in demand that we are witnessing is simply pent-up demand and eventually if it will die down, would it even be wise to pick up a big chunk to invest money in the rural-oriented or PAN-India oriented names?
I think you are making a very important point. I suspect it is more a case of pent-up demand and it is going to moderate. I would not say it will completely peter out but yes, it should moderate logically. That is one aspect. But the bigger aspect is that the markets are held steady by what is happening in the US where there is incessant money supply which is driving up the prices of financial assets and what is happening in India is to a great extent a reflection of that.

So there are two risk aspects over here. One, suppose for whatever reason things would go unbalanced in the US and if the US market were to fall, what happens to India. Second, are we drawing too many conclusions from this short term high frequency data which is emerging in the rural and PAN India names? So one has to be careful and there is no doubt about that.

What is your view on financials?
The market is very intelligent. If they are distinguishing between the separate segments, there is a method to that. Most importantly, Muthoot, etc are trading at all-time highs. No other banking and finance names would be trading at all-time highs. They may be rebounding from much lower levels but for sure they are not at all-time highs but Muthoot, etc, are at all-time highs. So that sort of tells you what is the correlation with the price of gold and what is the expectation of the price of gold. That is one part.

The other thing is that the second phase of moratoriums are much lesser than the initially announced moratoriums. So the market is taking heart from that. Third, you have to be content with this franchise value argument that alright fine, it is a bad time and there are s going to be a lot of bad loans coming forward, especially at the end of the second quarter where as we emerge from these lockdowns, a lot more pain is in store especially for financial names. That being said, the weaker ones would fall. So there is this increasing market share of the stronger ones and the franchise value argument that once things are normal, how are you going to deploy your money?

India as you know is not a great R&D power. It is not a great commodities-led power. A lot of growth before Covid struck was coming from BFSIs and one suspects that post-Covid, once situation normalisation, financials will once again, especially private banks and well-managed NBFCs, start showing good numbers. So some of the buying that is happening is due to franchise value-oriented buying. That being said, it is a risky time to be going after these names after they have rebounded by 40-50% from their March-end lows.