RBI measures to push up rates in short term: Ravikant Bhat, SBICAP Securities

In an interview with ET Now, Ravikant Bhat, Banking Analyst, SBICAP Securities, shares his views on the PSU banking space post the RBI measures to curb rupee liquidity. Excerpts:


ET Now: We have already been talking about the PSU lot being under a lot of pressure. There has been some contrarian opinion on the fact that there is value emerging in PSU banks, but with this development now, you think it would be a complete avoid?

Ravikant Bhat: As far as the value aspect is concerned, valuations have been quite subdued, they have been below book value for quite a long time now. But all valuations at the end of the day are derivation of what fundamentals the balance sheets are reflecting. Banks in the last one year, thanks to the directive from the Finance Ministry, have been cutting down on bulk funding, particularly with PSU banks, and as far as their liability franchises are concerned. See the RBI directive directly hits the liquidity aspect and RBI has tried to make the overnight liquidity both expensive as well as create some deficit by announcing the OMO. So if you look at both these aspects, as far as the PSU banks are concerned, we are comfortable on the liability side at least.

The way it can affect them is more on the earnings side and that is where this is going to affect more. The rates are going to definitely move up given the measures that RBI has announced. We have talked to some treasuries in the morning. Like the RBI said in a press release that there was evidence of improving domestic liquidity actually fuelling some speculative positions in the INR-dollar and also causing further pressure on the rupee’s exchange rate. To that extent that these speculative positions have existed, it should curb that activity, but it is going to push up the rates in the short term.

ET Now: Let us talk specifics now. By now we know what the measures have been taken. Some part of it is already reflecting in the stock prices, but even if you take into account the 4-5% or 8% cut in Yes Bank which is happening right now, private sector lot is trading at 4-4.5 times price to book one-year forward, 2-2.5 times PSU pack, in valuation terms, where do you see more downside even from current levels, specific stocks?

Ravikant Bhat: As far as Yes Bank is concerned, while we believe that it will be affected with all the measures that have been announced, if you are asking what our recommendations would be at this point of time, I do not think we have cut our recommendation. We continue to retain our buy and again valuations which you mentioned 4-4.5, on the back, very rich valuations which would be HDFC Bank, the other private banks would not be close. So IndusInd Bank and Yes Bank would particularly be at lower levels as far as one-year forward price to adjusted book valuations are concerned. So the whole thing in sentiment has been hurt and that is what is causing whatever depression that we have seen in the valuations and it will take some time for the whole thing to settle down.