Sentiment On Banking Sector Remains Cautious: Macquarie

On September 10, Macquarie Equities Research came out with a research paper on the Indian banking sector entitled 'Indian Banks: Are FIIs very Negative?' For this purpose, they met around 40 investors around Asia. It was found that these investors are willing to bet on stocks in the sector that have witnessed a sharp fall in their prices due to the compelling valuations that they reached after the prices tanked. However, it is also being said that the overall mood remains cautious.

The large 'long-only' funds have held on to their positions and are in no mood of selling their holdings although the prices have fallen considerably. Of this, the shares of HDFC are well held, and investors indicated that selling may only come when they see huge redemption pressure. A point to note here is that these investors feel that the EU region has been a greater surprise than the US, and if the economic data sees further improvement then fund allocation to this region may improve.

YES Bank has remained the most favoured stock among hedge funds and large long-only funds. There is interest in ICICI Bank and Axis Bank too. Axis Bank has caught investors' attention due to a sudden correction in stock prices, which has led to compelling valuations. Kotak Mahindra Bank is still not well held as the liquidity in the counter is less as compared to other large banks. The investors have not shown much interest in NBFCs either.

The report also comments on the role of the new RBI Governor saying, "As expected, there were many questions on the new RBI Governor and whether there is a possibility that he could reverse the stance taken by the earlier governor quickly. We don't think FIIs are expecting any reversal of stance and remain sceptical of his ability to revive the economy".

HDFC Bank, ICICI Bank and Kotak Mahindra Bank remain the top picks of the research house. However, they remain bearish on the overall financial sector of India.