Bullish on HDFC Bk & PNB: Prabhudas Lilladher

Over the past month, we have seen some significant losses coming to the Bank Nifty i.e. BSE Bank Index and some of the heavyweights. Abhijit Mazumdar of Prabhudas Lilladher said the fall has been influenced by fundamental and technical issues.

He told CNBC-TV18 that interest rates, inflation, news flow on the mark-to-market, forex, insurance and farm loan waiver in Budget impacted the fall. He added that private sector banks provide better visibility to earnings under the current context.

Prabhudas Lilladher remains selective buyers in private sector banks like HDFC Bank, Axis Bank and on PSU banks like Punjab National Bank and Bank of Baroda.  Mazumdar stated that Axis Bank is a buy in the range of Rs 750 and HDFC Bank is a buy in the range of Rs 1,300. He added that ICICI is very attractive at 1.1 time FY10 bookvalue. He finds PNB and Bank of Baroda’s valuations very attractive.

Excerpts from CNBC-TV18’s exclusive interview with Abhijit Mazumdar:

Q: What is your take on the manner in which the Bankex has moved? Do you think the fall now discounts all the bad news? Would you be a buyer in some of the counters?

A: The fall has been influenced by many fundamental and some technical issues. In January, everybody was bullish on the sector, people were heavily overbought and suddenly things turned different.

Interest rates are not going to soften and inflation was turning to be high. There was news flow on the mark-to-market, forex, insurance and farm loan waiver in Budget. So, people were not able to totally realign the portfolios given the stance on the sector they are taking. There was correction alongwith the market. The sector, which was overbought, also got heavily impacted.

After Q4 results in the private banks, we have seen numbers way ahead of expectations. Despite high provisioning on the forex side, private banks have continued to report robust earnings. So, there was some recovery. But with global weakness, they have corrected and there are high valuations for the private sector banks. In the current context, investors are not ready to pay.

So, the valuations are contracting for certain leading private sector banks. Overall, the private sector banks provide better visibility to earnings under the current context. We remain selective buyers in private sector banks like HDFC Bank, Axis Bank and on the PSU side we are selective on Punjab National Bank and Bank of Baroda. 

Q: It was not the best quarter in the net interest margin front for the PSU banks; primary lending cut was probably one aspect. Currently, with SBI raising its deposit rates, will we see further pressure on the NII growth front on the next two-three quarters?

A: For the PSU banks, NII is definitely going to remain under pressure because high inflationary pressures and no deposit rate cuts is actually not helping the cause. Also, they had announced PLR cuts expecting interest rates to soften. But the scenario has changed and they are unable to pass on higher cost. Some PLR revisions are taking place, which may negate something. But overall SBI’s aggressive growth stance on the overall sector is actually changing the dynamics on the deposit front.

That is impacting the overall deposit rates for the sector. Nobody is ready to take the risk in lower rates and lose out on deposits. That is going to keep putting pressure on the margins of PSU banks.

Q: Where are you recommending a buy and in which counters? What are the entry points? What would be your order of preference in terms of the stocks that you would pick?

A: Whenever Axis Bank goes below Rs 750, it sharply bounces back. So, in the range of Rs 750, Axis Bank will definitely be a buy.

HDFC Bank is definitely a buy in the range of Rs 1,300. At Rs 800-850 definitely we will be looking at ICICI Bank also. But ICICI Bank will take some time because this year will be more of a strategy change and things will start reflecting. But overall, if you see the businesses that ICICI Bank has and sticking to that value, ICICI is very attractive at 1.1 time FY10 bookvalue.

In Q4, Punjab National Bank (PNB) has been able to maintain margins and target stable growth without focusing too much on aggressive growth and is likely to do well. So, we remain in PNB and Bank of Baroda (BOB) whose valuations are very attractive.