With reference to the report, "Financials account for nearly a third of Nifty" (July 14), market capitalisation (MC) of the financial industry (read banking sector) competing with that of the manufacturing/services sector is not good news.
Highly leveraged participants in the industry are responsible for the higher interest income of participants in the banking sector. A balanced leveraged participant would optimise the shareholders' wealth.
The market has discounted the MC of highly leveraged companies. Yet it takes more time to discount the MC of banks having higher level of assets, because portion of these turns bad after some time.
Public sector banks (PSB) in India have been witnessing this phenomenon already. Four years ago PSBs boasted high level of MC and became the darlings of investors. Today the same segment sees falling market prices and suffers from low MC. The only silver lining is that the MC of leading private sector banks like HDFC Bank, Axis Bank and Yes Bank contributed to this phenomenon.
K V Rao Bengaluru
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