N Jayakumar expects reforms in the banking sector following the Narendra Modi-led NDA alliance's massive victory in the just-concluded Lok Sabha election.
The managing director of Prime Securities Ltd. told BloombergQuint in an interaction that he looked forward to a clean-up of state-run banks, introduction of a holding range of 50-60 percent among such lenders that could cap dilution and establish them as a fabulous investment destination. “The narrow movement on the Nifty 50 index will get replaced by a broad-based rally.”
The broader market is trading at a 30 percent discount and a move driven by many smaller stocks that aren't dramatically leveraged is the way forward, he said. “Picking the right stocks to invest in will remain a big challenge.” The Nifty Bank Index has gained 14.5 percent so far this year compared with the Nifty's 8.8 percent gain.
He listed measures that could result in better earnings growth for public-sector lenders. “Consolidation, aggressive provisioning environment and resolutions under Insolvency and Bankruptcy Code will lead to a substantial change in the fortunes of these institutions,” he said. “Earnings performance from now through to FY2021 could witness a dramatic shift.”
Jayakumar said that an immediate fix is needed for non-bank lenders—the backbone for small and medium enterprise, consumption and real estate sectors—that have come to a grinding halt following the IL&FS crisis. This can help overcome the lag between gross domestic product and consumption, he said.
He expected more public-sector bank and infrastructure stocks to redistribute load on the Nifty index.
Watch full interaction here:
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