Funds continue flow to India both in form of direct and portfolio investments. Investors and business owners are optimistic on India this year, as new government try to reverse the course of ailing economy with mixed dosage of austerity and regulatory reforms.
Despite so, Indian benchmark nifty is struggling to gain grounds, after curving new all-time high early this year. Nifty is trading at 8377, down -5.2% in last one week.
Why?
- Fear over US rate hike –
Investors seem to remain cautious over US rate hike this year, which might lead to capital outflow from emerging markets.
- Indian currency –
Indian currency so far performed well despite fears of rate hike, benefiting from foreign flow. INR is down just about -0.25% YTD against dollar.
However stronger INR is posing headache for exporters especially catering to Europe and Russia. INR is up 12% against Euro YTD and 8% against pound in last 12 months.
One sector looks cheap and might stand out –
That is public sector banking stocks. A chart from RBI is laid above that shows, as of now India has about 1.76 million ATMs which grew at an annual pace of 25% over the last decade and of that 71% belongs to public sector banks.
- New government and RBI is working together to bring most of India’s 1.2 billion people under coverage of banking facility. Id succeeded this will present largest number of customer base in the world. This inclusion which is already underway, are bringing fresh deposits to banks which mostly going towards public sector boosting margins on loans.
- With lower rates from RBI, public sector bank’s margin and net revenue is expected to improve in coming quarters.
- Main concern regarding public sector banks are their high non-performing assets, which with return of growth is expected to move down too.
- Price looks pretty cheap too. India’s largest bank SBI is trading at 1.8 multiple to book value.
The material has been provided by InstaForex Company – www.instaforex.com