PSU banking rally merely a trading bounce: David Pezarkar

In a chat with ET Now, David Pezarkar, CIO-Equities, BOI AXA Investment Manager shares his views on the PSU banking pack. Excerpts:

ET Now: What did you make of the PSU banking pack and the kind of rally some of it saw yesterday reacting to better-than-expected asset quality?

David Pezarkar: It was more of a reaction to the fact that they were beaten down to extremely low valuation multiples and basically the issue that one has with public sector banks is that, while their book value appears optically cheap, if you look at their sustainable ROE and the amount of restructuring that they have done and if you adjust their book to that number then you have the fear of a dilution below book value because their tier 1 ratios are extremely constrained.

So, that is why we have had investors stay away from that sector and that has resulted in a complete shift away from that sector. Therefore people were not exposed to that sector at all and that is an overreaction because some of the numbers turned out to be not so bad as expected but if you want to see a sustenance of this rally, you will need a couple of quarters more of reduced impairments. Otherwise, this is just more of a trading bounce.