Bank stocks have lagged behind in the current bull run, posting relatively lower returns to other sectors despite being one of the most preferred bets of many investors on Dalal Street. As IT valuations peak to new levels amid fears of a looming meltdown haunting investors, interest is rekindled in financials particularly largecaps with market players anticipating greater participation from the heavyweight sector in the rally.
Complete Circle Investment’s Gurmeet Chadha is a believer and recommends ICICI Bank as the best bet from the banking pack, while also recommending HDFC Bank and the State Bank of India (SBI).
On why ICICI Bank is his most preferred stock, Chadha told CNBC-TV18 India’s second-largest private sector bank (on assets and mcap) stock is “still available at a price-to-book value ratio of 2.1-2.2.”
Over the last five years, ICICI Bank’s domestic credit growth has been around 15 percent, and its valuation gap should continue to narrow compared with HDFC Bank, said Chadha, Co-Founder & CEO of Complete Circle Consultants.
In order of preference, he also likes HDFC Bank, and SBI from the PSU banking basket. “There has been relative underperformance in both HDFC Bank and Kotak Mahindra Bank, which commanded a 4-5 book multiple. We saw outperformance in counters like ICICI Bank, Axis Bank and even State Bank of India from the lows,” he said.
SBI’s credit quality metrics are almost comparable to its private sector counterparts. SBI has a restructured book of 0.8 percent of the assets and great focus on all streams, he said. “So in that pecking order, it is ICICI Bank and SBI,” said the market veteran.
Chadha also likes Federal Bank and City Union Bank. “I think big will continue to become bigger which is what we are seeing in a lot of sectors,” said the market veteran.
Chadha is neutral on Kotak Mahindra Bank. “I am very impressed with what they have done on the loan composition front. All of its subsidiaries are doing well,” he said.
Chadha’s picks from the banking space come at a time when the sector has lagged IT on Dalal Street. In 2021 so far, for instance, the banking index has not only stayed behind its IT counterpart by a wide margin but also been surpassed by the 50-scrip benchmark.
This is in sheer contrast to 2019 when a 12 percent rally in Nifty50 was backed by the banking index’s 18 percent return.
(Edited by : Ajay Vaishnav)
First Published: Sep 09, 2021, 06:53 PM IST