PSU (Public sector units) banks are a good trade but if one wants to buy and hold their money for ten years, then look for private sector banks. The real finance game is all about private banks and especially the new banks with the book as small as 20,000 or 40,000 crores.
The privatization of Air India and IRCTC convenience fee incidents will affect the investments in private and public sector units. PSUs are mostly in monopoly or duopoly but are excellent companies.
PSUs are dominating the economy. Their underlying value is high if they possess entrepreneur characteristics and follow a hands-off approach.
PSUs as a basket can at least provide the market return. There are fewer chances of underperformance as they did in the last ten years. Instead, they will outperform because of the pessimistic valuations. They are representatives of the Indian economy and not export-oriented.
If the monetary policy is encouraging, and there is less interference in their working system, then there is a chance of optimism. A slight rerating from 7-8 PE to 9-10 PE or a bit of outperformance will take care of their market performance.
There are two different views in the market – supporting the comeback of PSUs or encouraging fintech and technology.
Fintech has a specialization in unsecured credit like Buy Now Pay Later (BNPL). The moment one talks about security, one needs to become non-digital and go on the ground. One also needs to look for collateral which is a part of the process.
The fintech evolution is not a threatening factor for mainstream banking. In mainstream banking, there are both – public and private sector banks. In the next few years, when the economy recovers and the credit cycle changes, reversing the credit costs, public sector banks will also perform well.
They will be a good trade till the recovery process gets completed, which will take three to four years.
When the credit costs are the lowest, their profits will rise, but they will lose market share to the private sector banks. Presently, the private banks are not as cheap as the PSU banks.
So, if someone wants to be a long-term investor, buying and holding stocks for ten years, they should invest in private sector banks and some large public sector banks. The real finance sector lies in the hands of the private banks and the emerging ones with a low book value. They have an opportunity to grow at a fast pace.
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