PSBs need to show meaningful reduction in NPAs to sustain an uptrend: Dhiraj Sachdev

In a chat with ET Now, Dhiraj Sachdev, Senior VP & Fund Manager, Equities, HSBC Asset Management(India) Pvt Ltd, shares his views on banking sector, Excerpts:

ET Now: You are betting on some turnaround in the economy and you are seeing green shoots already, would that make you bullish on banks and would you start nibbling in at all?

Dhiraj Sachdev: If the economy has to move and turnaround and if you are believing that the reforms push will happen, banks have to participate. Now in the banks, the opinion is fairly divided.

There are private sector bank who have held up and managed your asset quality pretty well and on the other hand, the public sector banks have been vulnerable to poor asset quality and higher element of structured book but the point is that they are available at maybe 8 per cent to 10 per cent dividend yields and at 0.3 to 0.4 times adjusted book value and the market is aware of it.

So while public sector banks may participate in the rally tactically, unless they show a meaningful reduction in the poor asset quality trends, the rallies will be short lived. So yes, banking in general will participate both private and public sector but one has to be very watchful on the PSU bank space. Every quarter when they come out with the earnings, we have to see meaningful trend reversals in the asset quality performance.

ET Now: Within the private banking space also, there are two types of franchises, retail dominated franchise, names like Kotak Mahindra Bank and HDFC Bank and you have got corporate franchise, Axis Bank and ICICI Bank. So which way are you leaning, retail or corporate?

Dhiraj Sachdev: So if the economy has to turn around, then there will be further decomposing of their lending book, so the corporate banks will perform better than the retail banks would.