Corrections to help sanitise valuations: Bansal | Economic Times

Interest in PSU banks may continue for the time being given the way the valuation gap is still there and given the way things have been improving for them. But that does not mean that the private sector banks will be forgotten, says Kunj Bansal, CIO, Karvy Capital. What is your outlook for the equity markets? Are we likely to see continued traction with blips on the way? For over 160 days, no stocks have hit 52-weeks lows. Is that encouraging?We have been in an almost one-way movement of the market and if we extend our time horizon, that goes on up to the last 15-16 months. Within that, there have been periods of consolidation and marginal correction. The previous high of the market was in March 2021 at 15,300. We corrected in May by about 7-8% and from there we have come up again in the last one week or so. That is too short a period to say anything. So, there has been a range-bound movement in the market. While I do not know how the market will shape up, I will be very happy if the market remains in a range bound movement, consolidates or even corrects a little bit. It will help in valuations getting sanitised. Two, any correction will give opportunity for fresh money sitting on the sidelines to come in. Three, it will give an opportunity for non-liquidity driven, fundamentally good performing companies to start outperforming. We are currently in a scenario where money has been continuing to come in. This is one of the reasons for the market continuing to go up. The money continues to come in a limited set of sectors and a limited set of stocks and their valuations keep going up. The other companies which have been doing well do not get as much attention from the market. That attention always comes when there is a consolidation or a correction of the market. While I do not know what will happen, I will be happy if consolidation as well as correction happens. To know what will happen, we can only look at some of the factors or triggers that are there in front of us. While we have barely got over the March quarter numbers, which anyway because of the year end gets an extended time period, this time because of corona, Sebi had extended the time period further. Now we are already in the June quarter season and in about a week or so, we will start having the June quarter numbers. We will start seeing the actual monsoon progress and then we will also be moving into RBI credit policy. Of course, nothing much is expected in terms of change but given the way the oil price has been going up, it should have some impact on the market. As a result of inflation going up, hopefully there should not be any negative surprises. These will be the triggers which will decide the market. Having said that it is very difficult to say what will happen but overall positivity is likely to remain in the market. Where within banks do you find comfort? We are seeing PSU banks taking the centrestage and private banks taking the backseat.In the last eight months or so, we have seen good buying and money supply coming into the PSU stocks in general and within PSU banks as well. Their share prices and valuation are going up. One major factor has been the consolidation which was started by the government in the public sector banking space, followed by the announcements of privatisation. Most importantly, a lot of long lost money which these banks had in multiple NPA cases, has been collected by various measures, by NCLT and by other things and that is coming to the banks, shoring up their cash flows, which is now available for lending. So we are seeing that interest in PSU banks continuing and may continue for the time being given the way the valuation gap is still there and given the way things have been improving for them. But that does not mean that the private sector banks will be forgotten. We will have interest in private banks coming back sooner than later. One of the picks among private banks given the correction or the underperformance of over the last four-five months resulting in the valuation correction or time correction is Kotak Bank. That looks like one of the decent picks in the current market.