SBI | SBI share price: I am not too worried about Goldman’s downgrade; SBI is a top bet in the portfolio: Ashi Anand

The banking index has significantly underperformed the Nifty. It has lost nearly 4.5% so far. In the state-owned banking sector, what is the gap between deposit and loan growth and peak profitability? Goldman Sachs The note has downgraded SBI’s rating to “sell” and reduced its target price. What is your view on the Public sector banks?
Ashi Anand: The banking sector has underperformed, and the main reason for this has been the difficulty in attracting deposits in the last two to three quarters. And because of the difficulty in attracting deposits, the anticipated growth has also slowed down. This has created some short-term pressure. Because of that, the growth is slightly lower than expected and there is some amount of net interest margin.

That said, the banking sector is a space where we feel very comfortable from a long-term perspective. Looking at the overall market, from a three- to five-year perspective, if you try to identify sectors and companies with the capacity to grow at 13%, 15% and 18% that are available at attractive valuations, you will be hard pressed to find a good combination of growth, quality and valuations in other sectors.

In the banking sector, we are much more comfortable with the major private sector banks. As for state-owned companies, we believe that state-owned banks should be trading at a discount to private banks. They have been losing market share steadily over the last decade and we expect this to continue. Major private sector banks can increase their advances to 15% and 20%. Many state-owned banks would be capital constrained or not as aggressive on growth. So, there should be a reasonable discount.

That said, we believe that not all public sector banks are equal. There are certain public sector banks and SBI is probably the closest bank to the private sector banks in terms of the way management is increasingly focusing on fee income and the multiple segments of the capital market that are doing well. So, we see SBI as being a bit in the middle. We are very comfortable with SBI. It is one of the top bets in our portfolio. Honestly, we are not too worried about what the Goldman note indicates because while it is true that deposits are relatively hard to come by, a lot of the credit costs have normalised and there is still attractive growth coming in at attractive levels of profitability and valuations of about 1.3 times book value. So, it is not something that worries us too much.

Looking at the weekly performance of all indices, surprisingly, FMCG is the only one that has managed to stay in the green, even if nominally. It is the only sector that has ended the week in the black. Experts are talking about a recovery in rural demand. Comments are also coming in from leading FMCG companies. Are FMCGs on their way to becoming a safety net in a volatile market?
Ashi Anand: I totally agree with that view. We have been doing something similar in terms of our portfolio positioning. We have recently increased the weightage of consumption and FMCG. Let us look at this a little bit from a market construction perspective. Last year, the entire market returns were driven primarily by capital formation-related sectors. There was defence, railways, real estate and everything related to capital goods. The entire space was the main driver of the markets. Consumption, IT, pharma and many other sectors were quite a laggard. Now, while the growth prospects and business momentum in some of the capital formation sectors are undoubtedly very strong, valuations have probably gotten ahead of themselves and there was a clear reason for the markets to rebalance at some level. Now, for that rebalancing to happen, we need some signs of growth picking up. We are starting to see that in terms of FMCG. So, there are clear indicators that the rural economy and consumption, which have been weak for the last two to three years, are one of the main drivers of the underperformance of FMCG companies. Across all FMCG companies, there is talk of rural recovery. This is also supported by a reasonably strong monsoon. Various government schemes should also help rural consumption. So, it is a segment that has been underperforming for the last two to three years, and is seeing some levels of recovery in terms of growth. And franchising is among the strongest in the market. So, while valuations are not particularly attractive, in a market where other sectors have arguably become quite expensive in terms of valuations, consumption could do reasonably well.

What is your outlook for the coming week in terms of events? The GST meeting is already around the corner and the US CPI data is due out. We have been hearing about a soft landing and the Federal Reserve is expected to cut rates very soon and is also meeting in a couple of weeks. What can we expect from the CPI data, given that the jobs data has largely spooked the markets?
Ashi Anand: It is a delicate balance. A soft landing is desired for the US, but the US needs to slow down enough for the US Federal Reserve to feel comfortable with the idea of ​​cutting rates. Overall, most market participants expect the Fed to cut rates at the upcoming FOMC 16 and 17 meetings. Inflation data will be one of the most important data points coming out ahead of this meeting. As long as there are continued signs that inflation is coming down, that should support the Fed’s decision to cut rates.

We have had two or three years of sustained high interest rates and we have seen the impact in terms of very weak IFI flows in India over the last two or three years. So, what is very important is to get an inflation figure that supports a possible Reduction of rates which could allow us to enter the long-awaited rate cut cycle, which hopefully will be a kind of tailwind for the markets.