season so far, while the expectations were muted, thankfully the earning season so far had not really disappointed on those muted expectations," says
Ashish Gupta, CIO,
Axis Mutual Fund.
You are right, there is a sense of higher uncertainty, but if you look even at the government statement that came out, it clearly said that it was a non-escalatory move and you have spoken about it in the morning that there was already a sense of uncertainty that was building up in the market.
The market was not reacting to some of the positive macro cues that had been there over the past few days. Even if you look at the earning season so far, while the expectations were muted, thankfully the earning season so far had not really disappointed on those muted expectations.
So, we have not seen really major negative reaction to earnings. So, in that backdrop, and again I do not want to call out or really focus on short-term moves in the market, but what we are really focusing on is what is the magnitude of macro stability that we have and on that front whether you look on the currency front, we are very stable. Interest rates, we have actually seen a very sharp pullback in yields ever since the beginning of this calendar year because RBI had been comfortable with inflation and has really taken the system from a liquidity deficit to a liquidity surplus.
And their recent messaging had been that they are likely to continue with open market operations. Even on interest rates, we are more comfortable. The fiscal deficit is looking good. You would have seen the GST number come out and additionally the low oil prices is also helping government collect higher excise. So, the macro is stable and that is a comforting fact. The broader direction of the market for us over the medium to long term will depend on really the pace of
corporate earnings growth and that is what we are focusing on.
I go back to that point again, pardon me, but I just want to clear the air on this one. From a market standpoint, do you think what is happening on the geopolitical front, if there is no strike two, strike three, if there is no escalation in 24 hours or 48 hours, can that be a forgotten story then?
Ashish Gupta: So, we have some sort of playbook to look back to. So, you look back to 2016, 2019, and that is exactly how it had played out at that point time as well. And actually, in both those episodes the drawdown in the market had been a low single digit number.This is not a continuing situation like 2016, 2019, we move on from this, I do not think this is an area that market will worry about.
When Ashish Gupta is on air and if you do not talk about banks, then we will not do justice. We have seen a divergence in banks this time. There is one side icici Bank, great set of numbers; the other side is Kotak, they are struggling. I looked at SBI numbers, good. I look at Bank of Baroda numbers, I would not use the word terrible but disappointing is the word. So, for a sector where everything is going right, credit growth, liability side, even NPAs, why is there such a big divergence?
Ashish Gupta: The NPA side has generally been good across the board whether there is public sector banks, private sector banks, except for some NBFCs, that had relatively higher credit cost, the NPA side across the board has been good and the only soft spot has been the microfinance side.
On margins and growth, we have seen a big divergence. And actually, the margin outcomes have been very different for public versus private banks and public sector banks have seen some bit of margin pullback. Private banks have been actually able to generally beat market expectations on margin this quarter.
While from April, you will see private sector banks also seeing the pricing down of their loan books, the expectation is that the deposit rate cuts that they have undertaken and particularly the savings deposit rate cut they have taken which feeds into lower funding cost immediately should mean that even in FY26 the pullback in margins for the private banks will be modest.
So, market is taking that comfort, but I agree with you broadly that there are no real challenges for the banking sector. Credit growth had weakened over the last 12 months, but the change in RBI stance actually makes me optimistic that by the second half of this year you will probably again start seeing a pickup in credit growth.
