Good picks available in PSU as well as private banks: Rajesh Jain, Market Strategist

Rajesh Jain, Market Strategist, in a chat with ET Now talks about the banking space.

Rate hike seems to be inevitable at this point in time with the inflation bobbing its head, on the triple digit mark, you do have liquidity concerns with the kind of payment we have seen for 3G, WiMA. Now you would have very soon the advance tax figures also coming up. What is the call on the entire banking pack as such?

All the factors that you have listed out just now for the squeeze on liquidity should augur well for the credit off take numbers and again, we are seeing some very singular and focussed thrust on infrastructure. In the capital projects, the IIP numbers are looking up.

So there should be a very robust appetite even from that angle. There are two schools of thought on whether inflation should drive interest rates or should interest rates be just left alone because inflation is due to supply side pressures and increasing interest rates at this point could hurt the growth that is so visible in this system. My own call is that for a month or two, the RBI may choose not to dabble with it unless forced to buy the outcome of the monsoon. So in such a scenario, the banks would be looking at some net interest margin expansion and you have credit off takes going up. So a key question is sorted out.

The treasury income due to the pressure on bond yields could be a question mark on which we will have answers in the Q1 numbers. So that is a factor investors need to watch out for but there are a host of banks available at not to high price to book value ratios. So there are good picks available in tier 2 both in the PSU as well as the private sector space and aside of all these things, you continue to have two drivers, one of consolidation and the other of recapitalisation. So on a bad day if you were to buy some select banks both in PSU and private sectors small cap, midcaps, chances are that a year from now, you will be looking at 20% to 25% gains and when you come to the large cap, there are going to be news based drivers in ICICI Bank, Axis Bank and even State Bank of India.

So if you were to evenly spread your money between the large cap banks, private and public sector and the small cap banks, you have a fairly good host of options available and you cannot go too wrong.