Bank stocks now look attractive, with several falling below the long-term average for the industry, said Prashant Jain, ED & CIO, HDFC AMC. In a webinar Tuesday night, Jain said he now only finds valuations attractive to banking, adding that banks could benefit from the rising interest rate cycle. The fund manager stated that loans will be repriced faster than deposits and that inflation will lead to better margins and also contribute to credit growth. “Banks should see a good increase in loan portfolios due to asset composition,” he said, adding that NPAs are now at low levels and predicts that provisions will not be too high.
Furthermore, the HDFC Mutual Fund CIO advised investors to increase their equity exposure, saying that with the recent correction, valuations have become much more reasonable for investors than they were several months ago, aided by the time correction observed by Dalal Street. “Market capitalization relative to GDP is now falling and because there is a reasonable time correction, markets are now valued more reasonably than they were some time ago,” Jain said. Sensex and Nifty are down 10% so far this year.
Domestic markets, as well as global markets, have experienced negative developments in recent months due to several headwinds. Global markets face challenges such as inflation, supply chain disruptions, interest rate hikes and geopolitical conflicts.
While equity markets are facing headwinds, Prashant Jain believes it could linger for several more months, but risks could diminish over the next six months. Jain also added that massive selling by foreign institutional investors (FII) could also slow down in the next six months, as foreign funds have already sold large amounts of Indian stocks this year. “Sales by FIIs should decrease in the next 1-2 quarters or sooner. The next 3-6 months may be uncertainty, but after that some risks will be clarified,” Jain said. He added that investors should now start increasing their allocation to equities. “If there are dips, take advantage of them,” added Jain.
Banks aside, the fund manager is optimistic about large-cap stocks. Even amid the current uncertainty, Jain advises investors to stick with large caps. Meanwhile, consumer stocks are a space that Jain sees as expensive despite the recent correction.
Furthermore, the HDFC Mutual Fund CIO said India’s growth story remains strong and he expects India to maintain the fastest growing economy this decade. “Despite inflationary pressures and higher interest rates, the outlook for the economy and earnings growth is stable. In the past, Indian interest rates were just as high as they are now and India has done well even during those periods,” said Jain. He added that rising interest rates are just a normalization process, which is no surprise to the markets.