Expect a constant negative bias as we go along: UR Bhat, Dalton Capital Advisors


Talking to ET Now, UR Bhat, Dalton Capital Advisors , says for the next quarter or two, there would be further pain as far as NPAs are concerned.

Edited excerpts:
We have been seeing a lot of volatility, very violent moves coming by in the markets of late. But today, it looks like we have just moved about 5-7 points. It is a very range-bound market for most part of the day. Perhaps the market is settling down a bit?
Well, the market mood is somewhat subdued. There has been a 6% correction from the recent highs as far as the Indian market is concerned. Things are not exactly the way they should be, especially in the public banks and the sort of scams that we have been hearing about on a daily basis.

Therefore, this is what has spoiled the mood of the market a bit. The quarterly results have been by far alright, the ones that were bad, especially the public sector banks have been really bad but there has been some specific positive surprises in specific sectors as far as the results are concerned.

But as we go forward, the international markets are doing reasonably alright, the US economy is doing well. In Europe also, things seem to be looking up except probably for UK for specific reasons. Therefore, generally the global economy is doing well except that interest rates in US are going to be hiked. Whether it is three times, four or five times, is basically the debate. That probably put paid to the great enthusiasm towards emerging markets that you have seen in terms of flows into India.

But as far as India is concerned, if the monsoon is good and if the election/ byelection results have not been very encouraging for the ruling party, the market can remain sort of range-bound. I do not think it will go up or down dramatically but there will be a constant negative bias as we go along.

What is your stance on PSU banks? Today as well, it is one of the top losers. Is this really the time, as with the impending consolidation in the space, there are lots of clarion calls to reduce the number of banks under one entity. Is this the time to bottom fish in any of these PSU banks?
If you want to bottom fish, we can wait for some more time because post the new RBI circular regarding reference to NCLT, especially to those companies which have borrowed more than Rs 2000 crore, there will be further paying, further provisions that will be required especially the large PSU banks.

For the next quarter or two, there would be further pain as far as NPAs are concerned. Unless we have a really comprehensive plan about how this whole public sector banking system is to be put back into an even key, there is no great hurry because whatever that capital commitment that government made in the past, since then, the losses and additional provisions that may be required on account of the new RBI circular would not give them enough capital for growth. Therefore, something else needs to be done, some more serious thinking has to be done.

As to how to make these public sector banks viable and to make them finance the growth in the economy because as of now, what is really happening is that public sector banks are not able to participate in the growth momentum of the economy. Therefore, it is the private sector banks or the NBFCs who have been offered this opportunity on a platter and they are really making hay.

That is why most investors are really interested in buying into the PSU banking space but it will take some time to get back.

What about the auto space? The good performance month after month for all of these auto numbers do continue. There are concerns in relation to high BS etc. Maruti may be just an exception which came in tad below the ET Now poll, but the rest of the auto companies have delivered either in line or above expectation numbers. What do you make of the auto sale numbers for the month of February?
This is actually one of the most resilience sectors in the Indian economy because despite the promise that we have had in terms of growth numbers, till recently also, this is one sector even during the downturn of the economy, has done very well. However, valuations may not be exactly on the side of the investor today but nevertheless, this sector has given such a good account of itself that I think people would be interested.

This sector is worth investing in, if you have to invest in equities because I do not think valuations are still in the comfort zone. They are not very attractive for new investors to buy into the market but if you need to be in equities, the auto sector is a natural fit because of the growth that they have been able to demonstrate despite what is happening in the economy.

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