Why Manish Gunwani of Bandhan AMC is cautious about private banks

Manish Gunwani of Bandhan AMC is cautious on private banks at this juncture as he believes they do not offer a great risk-reward balance both from a cyclical and structural perspective.

From a cycle perspective, with low credit costs, most banks appear similarly positioned in terms of profitability and growth. However, there's still a valuation gap between low and high price-to-book financials that I believe will converge, he explained. This convergence might affect the perceived value of these institutions, he noted.

Structurally, he observed signs of changing customer behavior, particularly in the current account/savings account (CASA) segment.

"A lot of the high price-to-book private banks have business models centered around granular deposit franchises with the assumption of CASA growth. But, due to technological advancements and financial shifts, if CASA is becoming an issue, then the high multiples these banks enjoy are at risk," Gunwani elaborated.

He suggested that if CASA growth stalls, the resulting pressure on spreads could significantly impact profitability.

Gunwani also touched upon various sectors, noting the attractive nature of oil and gas companies and the potential tactical trade opportunities in the information technology (IT) sector, given expectations of a soft landing.

He also mentioned the increasing allure of unlisted companies attracting talent, hinting at possible wage pressures in the market.

“I think the big return globally in equities can only be made in 2024. If the Western Central Bank, specifically the Fed is more dovish than what general expectation is,” he said.

On a positive note, Gunwani identified oil and gas companies, especially those involved in divestment plays, as attractive investment opportunities. Despite challenges in various sectors, these companies seem to present promising prospects for investors seeking opportunities in the current market conditions.