'Banking stocks to remain under pressure; ICICI, HDFC Bank & Axis top buys'

Going ahead investors are likely to remain watchful COVID-19 situation in the country, vaccines development, lockdown restrictions with changing economic policies, and crude oil prices movements.

The banking sector is likely to remain under pressure in the near term due to high correlation with the economy, and the assets quality and business growth are expected to remain subdued in coming quarters, Sundar Sanmukhani, Head of Fundamental research desk at Choice Broking, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) The RBI MPC presser led to a sharp downtick on Friday wiping out most of the gains. What do you think was the reason for the fall?

A) Market participants were expecting some measures on loan restructuring front and possible OMO actions. While the RBI slashed repo rates by 40 bps to 4 percent, and no announcements were made on restructuring and OMO fronts which weighed on investor sentiment.

Further, the RBI’s grim outlook for FY21 also dented the sentiment. As per the RBI, Indian economic growth will remain in the negative territory in FY21.

Q) Nifty Bank fell more than 2% on Friday. What should investors do if they have a bank heavy portfolio? For new investors who can take risks, do you think some of the banks are available at reasonable valuations?

A) The banking sector is likely to remain under pressure in the near-term due to the high correlation with the economy. Assets quality and business growth are expected to remain subdued in the coming quarters.

For new investors, we only recommend investing in those banks which have stable assets quality, well-capitalized, balance sheet strength to bear possible COVID-19 related losses, and strong liability franchise.

Therefore, investors with a medium to long term horizon can invest in ICICI Bank, HDFC Bank, and Axis Bank. These are top private sector banks with strong fundamentals and also available at a multi-year low valuation.

Q) What are the important events and levels on Nifty which one should track in the coming week?

A) Going ahead, investors are likely to remain watchful on the COVID-19 situation in the country, vaccines development, lockdown restrictions with changing economic policies, and crude oil prices movements.

Q) Negative growth is something that might have got investors worried a lot. Do you advise investors to turn conservative from aggressive in this period?

A) Indian economy is expected to contract by 25 percent in the June quarter and by -5 percent in FY21. The impact on corporate businesses is likely to remain severe due to COVID related disturbance.

Economic sensitive sectors like auto, banking, and NBFC are likely to remain under pressure; however, investors can invest in pharma, IT, consumer goods, and telecom stocks.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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