India's banking sector has seen a sharp rebound after the pandemic triggered a meltdown in March but the "valuation juice is still there”, according to Dhananjay Sinha.
The Bank Nifty, currently at more than 29,700, is likely to go up to 40,000, director and head of institutional research at Systematix Group, told BloombergQuint's Niraj Shah in an interview. The index has surged nearly 75% from the lows of March and he sees it rallying beyond his earlier “conservative target" of 32,000.
The index still hasn't reached its pre-pandemic valuation of 3.8 times and trades at 2.4 times the book value. "I would say that it is fairly low, and there is still a significant upside,” he said.
The pandemic's impact on banks' asset quality has been lesser than expected, according to Sinha. Moreover, they will begin lending out the capital buffer they have accumulated, leading to higher growth, he said. “Our own forecast is that bank lending growth will be 7-8% by yearend and grow further to 15% next year.”
The next leg of the BSFI rally will be induced by foreign institutional investors, which will be compounded by the participation of mutual funds, Sinha said. Bank Nifty's rally will also push the Nifty 50 higher, but not by the same quantum, according to Sinha, who expects lending giants such as HDFC Bank Ltd. and Kotak Mahindra Bank Ltd. to outperform IT heavyweights such as Infosys Ltd. and Tata Consultancy Services Ltd. Even Reliance Industries Ltd. may underperform the lending sector, he said.
Watch the full conversation here:
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