9 ways to use credit card properly!

The Sensex has been on fire for the past few months. In the last one year, the index has rallied an unimaginable 61.5% and 24% on a YTD basis. Now digest this – if you would have invested money in the index on April 3, 2020, it would have doubled, up around 114%. The irony is that making money in the last 12 months has been amazingly easy. While Sensex is up 24% on a YTD basis, the midcap index is up 45% and smallcap index is up 56%. Lo and behold, the penny stock index too is up 150%. So, making money has been fairly easy.

However, one sector that has lagged is private banks, which are up only 17% this year, an underperformance of 7% as compared to the benchmark. A granular analysis will present a slightly different picture. Kotak Mahindra Bank stock is almost flattish, HDFC Bank and IndusInd also have the same story post the initial spurt in the first couple of weeks. A majority of the return has been made in one single stock — ICICI Bank. Some of the PSU banks have outperformed private banks by wide margins.

So, the first question is — why are private banks not performing?

a) Low credit growth: Systemic credit growth continues to languish at 5-6% levels. One of the key reasons for this is the lack of private sector capex. In the last five or so quarters, most of the companies have gone into cost-cutting mode and most of the incremental savings have been used to repay debt. At the systemic level, corporate credit growth remains in the negative territory. A large part of the sectioned limits remain unutilised. We believe it would be a couple of quarters before the credit growth trajectory picks up in a meaningful manner.

b) Fear of rise in NPAs: This is a very tangible fear, especially from the MSME segment. Two successive lockdowns have really taken a toll. Working capital issues plague the segment. While this issue may not have manifested yet, in the coming months it will, as there is always a little bit of lag.

c) PSU banks performance has witnessed a marked improvement: PSU banks, in the last few quarters, have witnessed a marked improvement in their performance. The loan growth trajectory has improved significantly and the books have been cleaned up. Recoveries too have happened from some of the larger NPA accounts. This along with the disinvestment play means the PSU banks have been in flavour more in comparison to banks.

d) Cyclical stocks: They have been in play for quite a few months now. The best performing segment has been metals by a wide margin, up around 80% so far this year. This meant that incremental liquidity has flown from these structural growth stories to cyclical stocks and banks have taken a hit.

As an investor, I think this is one of the best times to pick up bank stocks. Time correction has happened and these stories still hold true from a two-year perspective. We cannot have our GDP growing at a steady 7-8% pace and the banking sector not participating. So be greedy and be sensible now when all are fearful and ignoring the sector. However, as always – invest only in “Good & Clean” companies.

(The writer is fund manager at Ambit Asset Management. Views expressed are personal)