"Always remember that you
are absolutely unique. Just like everyone else."
—Margaret Mead (American, 1901-1978)
Word
for the day
Phalanx (n)
A number of individuals, especially persons united for
a common purpose.
Malice
towards none
The
game of mudslinging between AAP and BJP is no longer funny!
First random thought this morning
It is the nth time we are witnessing violence and disruption to
the public life due to the dispute over the Cauveri water. The dispute over
Satluj Yamuna Link (SYL) is also far from resolved, as Haryana and Punjab
governments are sleeping over it. Nonetheless, given the current Punjabi
non-Punjabi equation in Haryana, politicians like Arvind Kejriwal may ignite it
anytime.
Similarly there are many unresolved issues between various states
and the center and states. It is just like the situation in various courts in
India where millions of cases are pending for decades.
The point to ponder over is - As a society, are we too afraid to
seek closure of issues for fear of an adverse outcome?
Bank on Banking - 4
I am not sure whether the current
prices of all PSBs are adequately factoring in these concerns. But I am getting
increasingly confident that these concerns shall fade in next couple of years.
The reason for my confidence are
simple, intuitive and arguable. If someone wants to contest, I have absolutely
no problem in listening to their viewpoint; though I am in no mood to concede
my ground on this.
The accumulation of NPAs in PSBs
over past one decade is consequence of three factors - (i) Large scale
corruption; (ii) Error of judgment on the part of bankers and/or entrepreneurs;
and (iii) prolonged decline in economic cycle.
In my view, the corruption through
connivance of unscrupulous businessmen, bankers and politicians has diminished
considerably in past couple of year. The things should improve further in next
couple of years.
Error of judgment relating to
incremental demand for services and infrastructure led to huge accumulation of
unserviceable debt in sectors like power, roads, steel etc. The case is
reversing now. Market driven pricing of natural resources - minerals, airwaves
etc., in future shall remove another area of speculation in future earnings
prospects that has misguided the judgment of lenders and businessmen in past.
The economic cycle recovery
globally has remained feeble since bottoming in 2010-2011. India is no
exception. There is little sign that broader economic recovery will accelerate
anytime soon. However, a sustained 7% growth over next couple of years shall
generate enough business for banks as (a) consumer and farm sector demand
strengthens; (b) balance sheets of many corporates is repaired making them
eligible for new projects and credit; (c) lending rates moderate; and (d)
financial inclusion efforts of the government start yielding tangible results.
Insofar as the rising competitive
intensity is concerned, it shall certainly be a matter of concern for the
investors in PSBs. Given their bloated and inefficient cost structures and
operational inflexibilities vs. their private sector peers, it is likely that
they may lose market share over next few years.
In my view, given their reach,
fast expanding market and recent efforts to improve operational matrix, the top
five PSBs may not be impacted materially by the competition in medium term.
Acceleration in the efforts to consolidate PSBs will also add to their
strength.
Insofar as valuation is concerned,
I feel that the wide gap between the private banks and large PSBs may not be
sustainable. Though I am not sure how it will be bridged, e.g., (a) steeper rise
in valuation of PSBs; or (b) steeper fall in valuations of private banks and
NBFCs. As a strategy therefore, I am inclined to buy top PSBs on all declines.
Also read:
No comments:
Post a Comment