Banking sector likely to outperform over the next 18 months, says Max Life Insurance director

Dalal Street snapped its four-week gaining streak to end in the red. Midcap index lost over a percent but Nifty bank gained for the 7th straight week which is the longest gaining streak in 3 years.

According to Mihir Vora, Director & CIO of Max Life Insurance, the banking sector is likely to outperform in the months to come. However he recommended investors to avoid the NBFCs, micro finance institutions (MFIs) and small finance banks.

Vora said, “For the next 18 months I see banks as being winners. The whole game now within the financial space is about liabilities. There is going to be a scramble for liabilities, banks will need credit growth, so all the non-bank financials, whether it is NBFCs or other segments of financials will face competition from banks. So banks with huge liability franchises, deposit franchises will continue to outperform. So within the financials we will only look at banks and avoid the NBFCs, MFIs and small finance banks.”

Vora added that he continues to be negative on the IT sector.

“Ultimately it is not the absolute level of earnings that matters but it is the trend of earnings that matters. So if you see upgrades in a sector then you will probably have rerating continue and PE will continue to go up. However in the case of IT we are beginning to see downgrades and slowdowns, which means that the PE may not be sustainable. Even if you see 3 percent downgrade in IT earnings estimates, you probably might see the PE come down. So I think IT sector will continue to see downgrades and so I continue to be negative on that,” Vora added.