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    Start nibbling at top 5-6 banks via SIPs: S Naren

    Synopsis

    ‘The outlook for the top five, six banks continues to be extremely good at this point of time. Everything cannot become a platform.’

    S-Naren2-ICICI Pru AMC-1200ETMarkets.com
    There are a wide variety of companies and it is across sectors and the deployment strategy has to be more gradual, says Executive Director & Chief Investment Officer, ICICI Prudential AMC.

    Where would you be a contra buyer right now?
    My view is just do fundamental analysis and look at where do you think earnings are underappreciated today and you would find a wide variety of things at this point of time. Frankly, it is only a narrow set of stocks where we find that earnings have been fully valued at this point of time. There are a wide variety of companies and it is across sectors and the deployment strategy has to be more gradual because it is true that there are sectors which have done well where the near term outlook looks very good at this point in time and there are sectors where the long term outlook looks very good at this point in time.

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    I believe that where the near term outlook is good at this point of time, you slowly take out money because you have to accept that we have gone through a very difficult period due to Covid which has benefitted many of the near-term outlook sectors like technology and pharma. You cannot at one point of time take out all the money from the sectors where there has been a near term outlook benefit whether it is ecommerce, technology, pharma and put that money into sectors which will do well in the long run.

    I believe that that process has to be more gradual and it has to be more nuanced. Having said that, the level of valuation differential is so large at this point of time that there are very interesting opportunities across a wide variety of sectors and it is not just limited. If you did a simple check and looked at price to earnings, price to book and the dividend yield based on 2020. you would get a wide variety of stocks. On one hand, you have an average Nifty PE of 37 currently and you have a number of stocks which are trading in the price to earnings of less than 10. Just imagine what kind of a variance you have at this point of time, giving you a lot of margin of safety for investing in the long run.

    "The level of valuation differential is so large at this point of time that there are very interesting opportunities across a wide variety of sectors"

    — S Naren


    Just looking at that one underperforming pocket of the market with the largest weightage on the indices and that continues to be banks. If so, where would you find opportunities within banks? Should one stick to the top five names or could one look at bottom up stories?
    We have been giving a communication that this is the time to start SIPs and systematic transfer plans into banking funds and this is not an area which we have rarely communicated because we think that this is the time to start nibbling. Having said that, it is clearly in the top five or six banks at this time because the way the market is evolving, it is also the amount of capital that has been raised by the top five, six banks which at this point of time, gives them disproportionate capability to handle any problem that may arise in the post moratorium phase.

    I believe it is going to completely focus on the top five, six banks and I think it is clearly time to start nibbling and on a continuing basis starting now and that is why we think that there is a good opportunity to invest in SIPs in banking and financial services now. Just like we have been recommending value-oriented strategies or these kinds of investments at this point of time along with asset allocation strategies, we clearly think there is a good opportunity at this point of time.

    I was looking at a very interesting tweet from Mr Uday Kotak and he spoke about what were the 10 top financial institutions in 2010 and where they are and guess what? Platform companies which offer financial services have completely taken over. Are markets telling you that the way you would be financing in future would be very different?
    If regulation allows it, maybe it can happen, I do not know. I am not an expert in this area, but I believe that in India even today if you the public sector banks command a very large part of the market share. If you look at insurance, even today LIC has a very large part of the insurance market share. In a country like India, overnight you are not going to see that big a shift as everybody would like to. The outlook for the top five, six banks continues to be extremely good at this point of time. Everything cannot become a platform.

    Of course there is going to be a very successful launch of an IPO in the near term which will actually have a lot of discussion on this issue. But I still think that the outlook for the top five, six banks over the next five years look pretty interesting for systematic investment.

    Globally, there are Robinhood traders, in India there is a surge in demat accounts. Do you think we should not disregard the kind of understanding and value that retail investors and traders both locally and globally are bringing to the table?
    Basically if they are disciplined, I am very happy and today they have been pushed into this area because interest rates have been very low. Sebi has been very proactive in ensuring that too much trading does not happen and too much leverage does not happen in this area. And there has been a tightening of norms on September 1 and another set of tightening will happen on December 1. So all these things are playing a role at this point of time and consequently I would say that all that is going to make a difference in ensuring that even retail investors will stay disciplined without too much leverage.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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