Correction in private banks due to institutional ouflows, fundamentals intact: Deepak Shenoy, Capital Mind

In a chat with ET Now, Deepak Shenoy, Capital Mind, shares his view on private banks.

ET Now: Private banks yesterday corrected and they corrected with some force. Kotak Mahindra Bank took a knock of 5 per cent, HDFC Bank 3 per cent and ICICI Bank has gone way below Rs 300. What is going on? I thought markets adored private banks?

Deepak Shenoy: Adoration and the markets do not go together these days. In fact, they were just played by the global markets card or the general market sentiment, banks in general; private banks, at least, I believe have been little overvalued in the recent past primarily because of the sentiment that our private sector will continue to be outperforming substantially in comparison with public sector banks. But, having said this one of the things that really happens in a downturn is that you reassess a lot of the basic fundamentals and try to figure out whether certain things have gone much farther than they should have.

A number of value stocks in the market actually corrected substantially at 100 PE or 60 PE or 70 PE at the peaks and are now down to 40-45 PE which is still high but not as high as they have used to be. Banks might actually see a PE re-rating in the context of extremely low credit growth, banks have seen less than 10% credit growth in the industry overall. So, some of that negative sentiment will trickle down to private banks as well.

Having said that, this is not really a fundamental change, this is about fund flows. Foreign investors are heavily invested into Indian banks if they take their money out they will choose to take the money out of the banks first because they are liquid stocks. This is not really a re-rating of the fundamentals yet, that will come but this particular fall is all about flows.