Private sector banks have always remained at the centre stage, given their role as major drivers of the economy. With leadership changes taking place in major banks of the country, the sector has garnered significant attention from market experts.
To seek insights regarding the prevalent state of the private banking industry, ET NOW reached out to market expert Sandeep Sabharwal, who believes Kotak Mahindra Bank currently offers a clearer story compared with HDFC Bank. Sabharwal also expressed views from an investor’s point of view.
“Both of these banks used to trade at a price to book of six times at one point of time,” he said, adding that valuations moderated amid an overall correction and some growth issues.
According to Sabharwal, Kotak’s leadership transition appears more structured, which gives investors greater visibility.
“Now in KOTAK the growth transition is a structured transition so I think to that extent that’s got factored in,” he said. He added that some of the near-term growth triggers that the market had initially missed were now coming into play.
“I think Kotak could do reasonably well,” Sabharwal said.
While HDFC Bank continues to face uncertainty around its leadership transition, Sabharwal believes much of the concern may already be reflected in its share price.
He pointed out that the bank’s asset quality remains strong despite concerns around leadership, corporate governance and relatively moderate credit growth.
“What shareholders need to evaluate is whether all that is factored into the price,” he said. “Now I would think that given the fact that the asset quality still remains very strong most of the concern should be in the price now.”
Sabharwal also highlighted the sharp valuation correction in HDFC Bank, saying it is now approaching valuations seen in some PSU banks and trades at a significant discount to several other private sector banks.
“I would think that these price levels are good,” he said.
However, he believes there could still be some technical pressure on the stock because of its ownership profile.
“Technical factors for HDFC Bank is it’s a very very over owned stock among funds, foreign investors and retail investors. So I think that’s the issue which could slow down the progress,” he said.
When asked whether he was tilting more towards Kotak over HDFC Bank, Sabharwal was clear about his preference.
“Yeah, Kotak the story seems to be clearer. There have been no real controversies around Kotak,” he said.
For HDFC Bank, the appointment of the next CEO could prove to be an important trigger for the stock.
“HDFC bank I think who will be the new CEO will be very important and I think that could determine the short-term direction at least,” Sabharwal said.
He said ICICI remains his biggest holding among the older, larger positions, followed by Axis Bank and HDFC Bank. He added that Kotak remains a smaller holding.
“Among the older bigger holdings I mean ICICI is the biggest followed by AXIS and HDFC bank,” he said.
Sabharwal maintained that ICICI Bank has done little wrong from a fundamental perspective and that this remains the key factor supporting its stock.
“ICICI has done nothing wrong fundamentally and I think that’s what continues to drive its stock price,” he said.
Despite the stock remaining in a range for an extended period, he pointed to its healthy credit growth as a positive. He also believes a leadership change is unlikely in the near term.
“I would think that it’s unlikely leadership would change anytime soon,” Sabharwal said.
