India's public-sector banks have the potential to outperform private peers in the coming 12 months, according to Vikas Khemani, founder of Carnelian Asset Advisors. Private banks are currently struggling with elevated credit‑deposit ratios, while PSU lenders have stronger balance sheets and better deposit mobilisation, he told NDTV Profit in a televised interview on Tuesday.
Amid the sharp market correction since the start of the year, PSU banks have managed to hold off steep declines. The NSE Nifty PSU Bank index is down 1.4% year-to-date, compared to a 13% fall in the benchmark Nifty 50 and nearly 15% drop in Nifty Private Bank.
Fears over the economic impact of the Iran war on India have weighed on banks, the major source of credit for companies.
Khemani said India's banking system remains fundamentally strong with macroeconomic conditions largely in place, but a prolonged geopolitical conflict could pose risks to growth and corporate earnings.
"The level of correction in banks is not warranted. We are positive on PSU banks because of valuation comfort and good CD ratio compared to private banks," he said.
The fund manager cautioned that the March quarter earnings season could be challenging for corporates, with supply chain disruptions and higher costs affecting profitability. However, he expects the pressure to be temporary if the situation stabilises. Sectors like aviation are facing temporary "dislocation" that will weigh on earnings and stock price in the short term.
Khemani noted that India has limited leverage in the ongoing conflict, and any extended escalation could push the global economy towards a recession. A prolonged crisis could disrupt global supply chains, which may start reflecting in corporate earnings from the first quarter.
The silver lining in all this is India's retail inflation still well within the central bank's comfort zone, providing policymakers with some room, even as global uncertainty rises.
Watch Vikas Khemani's Full Interview Below
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