No meaningful changes in private sector capex before elections: Sameer Bhise

Private banks lost to PSBs in 2024 as the latter gave double-digit returns. HDFC Bank saw a correction in share prices, FIIs sold financial stocks, and Goldman Sachs issued a “sell” call on YES Bank. PSU banks rallied, but caution is advised in the sector.

The capex tracker index of institutional research firm Avendus Spark shows a reading of 342 in June 2023 - the highest in more than 12 years. The index has been consistently rising since December 2020 - when it hit a low of 147. The index assigns weights to private capex announcement (35%), aggregate new order (15%), import of capital goods (10%), and central government capex and state capex (20% each).

As much as 60% of deposits in commercial banks as on September 30 are from large cities, according to the Reserve Bank of Indias latest quarterly report on bank deposits.

The share of public sector banks in deposits shrunk 119bps between March and September 2023. In loans, this declined 296bps over the same period.

FY23 was the best ever for Indian public sector banks, posting impressive earnings and stock performance, with the banking sector gaining favour for adapting to the digital age, according to market expert Swapnil Shah. The strong gains have seen the Nifty PSU Bank index rise by 65% over the last year, outperforming the Nifty Private Bank index. The public sector banks have a lot of potential for a further upside, with many analysts suggesting Bank of Baroda and State Bank of India as stock picks for FY24. Multibaggers include State Bank of India, Punjab & Sind Bank, and Bank of Maharashtra.

Indian public sector banks (PSBs) have seen a significant fall in their stocks so far this year as compared to private banks, which have remained resilient amid the ongoing banking crisis. On a year-to-date basis, Nifty PSU Bank index slumped down 7%, however, Nifty Private Bank managed to limit losses, with its index falling just 2% this year. Rising interest rates and the recent Adani-Hindenburg scandal are the main reasons for PSBs' underperformance, as per V K Vijayakumar of Geojit Financial Services.

Relative comfort on valuation is to be found in large caps in sectors such as BFSI, pharma and healthcare over a one-year horizon, says Vetri Subramaniam, CIO at UTI AMC.

High attrition rates in private sector banks has increased the appeal of public sector banks (PSBs) for job seekers. HDFC Bank, Axis Bank and Kotak Mahindra Bank have all recorded attrition rates between 34% and 50%, whereas PSBs such as State Bank of India, Bank of Baroda, Punjab National Bank, and Canara Bank have experienced attrition rates of less than 5%.

Probably banking is a word which many may not like to hear given the fact that the fall has been led by the banking sector. But the fact is short term market moves are different from what is happening in the real business. In the case of PSU banks, there has been an improvement in performance in the last two quarters. Yes, there will be some cyclical pressure on margins but beside margins there is more to PSU banking space, which is credit off take that too from large private corporates. Given the higher probability of capex cycle is likely to revive, these banks are much better placed due to the size and skill set to lend to such sectors.

While the central bank has not yet sent any specific queries or sought new disclosures from other banks, bankers expect that the RBI will henceforth scrutinise digital data more closely and not take anything at face value. So far the RBI used to take updates and data on the progress of digital channels from banks at face value, but going forward we expect more scrutiny and comments from the RBI on this, the digital head of a private sector bank said.