 "Public sector banks back in favour on macro factors")
Over the past three years, public-sector banks have been cold-shouldered by foreign investors on asset quality and capital concerns. From time to time, analysts upgrade their 'underweight' calls on these banks, only to revert when the quarterly numbers disappoint.
The market's view has changed yet again for these beaten-down stocks, and a large part of the current hope rally has been fuelled by banking stocks. The rise in bank stocks accounts for 36 per cent of the 751-point rise in the Nifty since February 13, when markets hit a year's low.
Analysts are rushing to say the worst is over for the beaten-down public-sector banks. On March 27, Goldman Sachs released a report saying neglected public-sector banks are "poised for a rally on emerging macro/political clarity".
Much is also expected from the new government on the infrastructure and roads sector. Goldman's global economics team believes macros have bottomed out and inflation will continue its downward trajectory, resulting in a 100-basis point rate cut by the Reserve Bank of India over 2015 and 2016.
Predicting a rally, based on FY16 estimates, may seem premature but there are more credible reasons behind this optimism. Barclays, for instance, expects FY15 to be a challenging year for banks, from both credit quality and growth perspectives.
However, it expects well-capitalised banks with strong deposit franchises to do well. The brokerage sees the maximum upside in State Bank of India and Axis Bank, in case of a recovery. Barclays also believes monetary policy easing is a possibility, which would help the sector.
Deleveraging by corporate India is a bigger reason to cheer than the possibility of rate cuts a year down the line. Indian corporations have sold assets adding up to 2.6 per cent of industrial loans in the past two years. This would ease the build-up of stressed loans in the near-term, believe analysts. There are too many variables to call this a secular rally yet.
The market's view has changed yet again for these beaten-down stocks, and a large part of the current hope rally has been fuelled by banking stocks. The rise in bank stocks accounts for 36 per cent of the 751-point rise in the Nifty since February 13, when markets hit a year's low.
Analysts are rushing to say the worst is over for the beaten-down public-sector banks. On March 27, Goldman Sachs released a report saying neglected public-sector banks are "poised for a rally on emerging macro/political clarity".
Much is also expected from the new government on the infrastructure and roads sector. Goldman's global economics team believes macros have bottomed out and inflation will continue its downward trajectory, resulting in a 100-basis point rate cut by the Reserve Bank of India over 2015 and 2016.
Predicting a rally, based on FY16 estimates, may seem premature but there are more credible reasons behind this optimism. Barclays, for instance, expects FY15 to be a challenging year for banks, from both credit quality and growth perspectives.
However, it expects well-capitalised banks with strong deposit franchises to do well. The brokerage sees the maximum upside in State Bank of India and Axis Bank, in case of a recovery. Barclays also believes monetary policy easing is a possibility, which would help the sector.
Deleveraging by corporate India is a bigger reason to cheer than the possibility of rate cuts a year down the line. Indian corporations have sold assets adding up to 2.6 per cent of industrial loans in the past two years. This would ease the build-up of stressed loans in the near-term, believe analysts. There are too many variables to call this a secular rally yet.