Valuations of banks still attractive: UTI AMC

There could be incrementally positive surprises in financials, said Vetri Subramaniam, Group President and Head-Equity of UTI AMC.

"I think in financials there is still perhaps headroom which is clearly visible to us and we have still got some valuation support on our side. I think there could be incrementally positive surprises. So that would clearly be one are which has the backing of valuations,” he said in an interview to CNBC-TV18.

"Even though the banks have been on a bit of a tear over the last month or two, the fact remains that year-to-date it has been one of the underperformers. If you look at the valuations, we continue on a bottom up basis to find the valuations in some of these banks and financial institutions, to be quite attractive," he added.

However, according to Subramaniam animal spirits of entrepreneurs is missing. "Where I am still finding few links missing is really first of all the animal spirits of entrepreneurs. Secondly, companies are still looking to de-leverage; they are not looking to invest very aggressively. So, I don’t think the animal spirits in that sense have come back with entrepreneurs,” he said.

He further added that the investment cycle may not be as strong as the one in 2003-2008 period. “In terms of driving the investment cycle, when you look at 2003-2008, maybe all the way up to 2010, it wasn’t just a powerful investment cycle, it was most probably a super capex cycle. If we use that as the benchmark, we might be continuously disappointed,” he said.

“It is still not clear to me that we can get such a strong capex cycle going again because I don’t think the financial system has the risk appetite, the entrepreneurs don’t have the risk appetite, and the PPP model which was the buzz word of that period doesn’t exist anymore. So the burden then falls on the government to be the key driver of infrastructure investments and capex,” he added.