Recommend having few high quality banks in your portfolio: Saurabh Mukherjea, Ambit Capital

In an interview with ET Now, Saurabh Mukherjea, Head of Equities, Ambit Capital shares his views about the banking sector outlook.

ET Now: What is the sense in terms of taking contrarian calls in the market right now?

Saurabh Mukherjea: The biggest contrarian call to take at this juncture would be to go overweight on Indian banks. Especially the banks which are trading below the book value like Karnataka, Union Bank, J&K Bank or even the smaller and the public sector banks. Take that position now, because if it works out then these banks will get re-rated to something like 1.3-1.5 times of book value very quickly. If it does not work out for you then you only lose 15-30%. But that is a big debate.

Our sense is that it is worth having few Indian banks in your portfolio. If you do want to have banks in your portfolio then go for banks which are overcapitalised like Kotak Bank and Federal Bank. Amongst the larger names would be the banks like BoB in the PSU space. BOB and Federal Bank are at 1 time book value, Kotak is at 2 times book value.

I would like to go with the high quality banks rather than the really depressed valuation multiples. But building an overweight position in Indian banks is really a big debate at the moment. I am not convinced that I have got the appetite for that sort of risk, but I certainly would recommend having a couple of high quality banks in your portfolio.