You can short the entire market if you want, but go long on banks: Experts

NEW DELHI: It is getting wonderfully nice for the bulls and it is also getting wonderfully nice for the people who want to short the market except for the banking sector, Ajay Srivastava, CEO of Dimensions Consulting, told ETNow.

Comments like these would have been heresy 12 months ago, but today, with most of the June quarter earnings in, the banking sector is again standing out as a beacon of hope. And for those selfishly inclined, here is an opportunity to make big money.

“If you look at the sectoral picture apart from the banking sector, which has been a one-way street, other sectors have presented phenomenal opportunities to book profit and revolve your capital,” Srivastava said.

It is true, earnings for the banking sector have been below par, yet the Nifty Bank has delivered 38 per cent return since the Budget Day in February.

And for the banking sector, skeletons continued to tumble out of the closet in the form of bad loans every quarter.

But June quarter earnings are proving to be turning point for this space. Last week, country’s largest lender State Bank of India reported Street-beating earnings following on the footsteps of Kotak Mahindra Bank and HDFC bank.

Temasek, the investment holding front of the Government of Singapore, recently opened some $18 million worth of positions in the American Depository Receipts of ICICI Bank, according to Bloomberg News. This, after the group had sold a 3.5 per cent stake in the bank in 2012 before the NPA crisis came out in the open.

Temasek’s positioning is increasingly seen as evidence that the bad loans crisis which has crippled the country’s banking sector and, thereby the economy, is finally turning a corner.

“The most important thing going forward is that the pace is coming off. But what will decide the trajectory of gross NPLs is the pace of recovery resolutions which, I think, is very difficult given the current system that we have in place,” said Nilesh Parikh, Edelweiss Financial Services.

Not everyone on the Street share the enthusiasm of Nilesh Parikh and Ajay Srivastava.

“One big rally has already happened on the banking counter over the past three months, which we have been happy to let it pass because we still believe the challenges are still there in terms of both asset quality and capital issues,” Ganeshram Jayaraman, SPARK Capital Advisor, told ETNow.

Jayaram believes the coming two to three years could be especially difficult for the public sector banks, which will see retirement of most of their top management.

Jayaram believes as long private sector capital expenditure doesn’t turn good in India, “we do not see them benefitting materially in terms of growth or asset quality.”

Whether the closets reveal more skeletons in the future quarters is anybody’s guess, but one thing is sure: the story of the India’s banking sector is getting interesting by the day.