Sunil Singhania, founder, Abbakkus Asset Manager told CNBC-TV18: “Particularly three corporate banks declared results which have given a reassurance that we are picking out in terms of stressed assets and from here on things should start to normalise. It also ensured that liquidity available for lending should also be pretty robust compared to last year. Being an optimistic, I think next year hopefully will be better than seen over the last one year.”
Singhania said he would still prefer the larger corporate banks even for the next one year.
“If we actually see the results of these large corporate banks declared, very clearly pre-provision operating profit almost moved up by 18-20 percent and provisions have started to come off quite significantly. This trend I think will strengthen going forward and I think they are still trading at reasonable valuations looking at their return on equities (RoEs), price to book value ratio,” he reasoned.
“And in couple of them, subsidiaries are adding a value whether it is general insurance, life insurance, even mutual funds and one case even in card business. So I would stick to large corporate banks,” he said.
What are other themes to look at?
Singhania: I think we are looking at an environment where interest rate is going to soften. “Interest rate in India at 6.5 percent for 10-year G-Sec and 8-9 percent may be for a ‘AAA’ rated companies is may be highest in the world. And if we look at the world where yields are non-existent, it is very fair to presume that over the next 5-7 years, in India we are going to see a systematic reduction in the interest cost both from a corporate perspective as well as from a consumer perspective. And we will do well with companies which are financially leveraged rather than companies which have excess cash on which they are making financial income.
Singhania: Hence companies which are called so neat and clean, trading at 17-18 PE multiples and also get multiples of 17-18 on their treasury income and that is going to change. I would say that companies like on the real estate front which are benefits from falling interest rate. Some of the other companies which are in hard assets, may be likes of metals, cement, paper or even light engineering companies which all can be beneficiaries of one no capex coming up so less competition, or revival in the economy and third lower interest rate which would be a tailwind for them because of their financial leveraged.
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