Indian Equities: Time for reshuffling and partial profit booking!

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 Indian Equities

Time for reshuffling and partial profit booking! 


The BSE & NSE Index are hovering near an all time high level. Market mood is upbeat despite stretched valuations.  We have been witnessing a broad-based bull run and sentiments are very high with the record increase in retail participation owing to aggressiveness shown by the millennial. However, we know that no asset class goes in one direction only and at some point of time a correction is likely to happen. Although in near term we might not see any meaningful correction in the bourses but many scrips have run up sharply posing risk for deeper correction in some of them. Investors who are sitting on high unrealized profits are advised to bring some profit out of the table and diversify a part in other asset classes like gold and into balanced funds where risk of capital erosion is very low.  At the same time one should start reshuffling of the portfolios and shift to safer scrips which are less volatile and have sound fundamentals.  One can book some profit in cyclical like metal, cement and pharma companies and reinvest the same in  Banking, FMCG and Consumer Durables, the activities in which is likely to increase with  the ease of restrictions in lockdown country wide. One can also prepone the EMI payments using excess liquidity to reduce the debts. If you are planning to purchase your own house, shift some capital from equities to liquid that could be utilized for buying your own house.  


However, still if people want to remain in equity, I would like to suggest investing gradually in Indian Banking Sector which is likely to be a multibagger in the long run. The Indian Banking Sector so far has remained underperformer in comparison to others owing to muted credit growth. But  the sector is now poised for an increase in credit growth thanks to stimulus measures taken by the RBI and Central Government from time to time to boost the economy and the capex plans being implemented by corporates. If you like to stay invested in the Banking Sector, say for between 5-15 years time, it will not be surprising that your money will multiply even 10x depending on how long you hold your investment. I  have some solid reasons to explain here as to how our banking sector is going to perform phenomenally in the coming decade. 


Firstly, leading banks have already cleaned up their balance sheets with continuous write off of bad assets since last 5 years although still there are certain setbacks owing to pandemic but most of them have made sufficient provisioning to bear the jerks related to covid-19. At the same time many of them have been successful in raising substantial funds through QIB and other means for meeting their liquidity requirements.


Secondly, RBIs continuous efforts to boost the liquidity in the banking sector have been benefitting immensely the entire system. In addition, the declaration of starting Bad Bank would help many to sell their bad assets to bring in more liquidity in their operating system. 


Thirdly, the most important development we have been witnessing is that the organized economy is now growing at a rapid pace. With the shift to an organized economy, the banking transaction volume has been increasing multifold which is not only a good sign for the healthy growth in the economy but also a big blessing for the entire financial system of our country. 


Fourthly, more digitalization and adoption of technology has been bringing in improved efficiency, cost cutting and transparency in the entire system.  Hopefully, AI and block chain technology would likely be introduced sooner in the system. Technology is going to play a big role in future banking. Branch concept will slowly be phased out in retail banking helping in a huge cost cutting and bringing in a seamless operating platform for the clients. The millennial and generation z are more tech savvy and they would prefer everything on single click on their mobile or laptop. They prefer digitalized transactions over cash for a hassle free lifestyle that will attract a big boost in banking transactions. In the recent past the transaction volume in PAYPAL in the US has even surpassed the volume of many big traditional banks. The same trend we foresee in India also.


Lastly, some of the leading banks have now become more aggressive in providing loans in the retails in the form of housing loan, vehicle loan and other personal loan. The demand projections in housing, automobile are suggesting a huge requirement for financing in the retail sector. This will increase loan growth dramatically in the near future for the entire banking system. 



Recommendations:

KOTAK BANK

AXIS BANK

ICICI BANK

FEDERAL BANK

HDFC BANK

SBI

Horizon: 5 to 10 years.


If someone does not want direct exposure, investment through SIP mode in Banking Fund is suggested.


-Rajendra Jhanwar           


       



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