PSU banks steal the limelight as private lenders lose steam: Sunil Subramaniam

In a market where investors are actively seeking value, financial institutions – especially private sector banks – are struggling to keep pace. Even after several rounds of analysis and optimism earlier this year, the segment continues to underperform, prompting a deeper investigation into the cause of this difference.Speaking to ET Now, Sunil Subramaniam, Founder and CEO of Sense and Simplicity, gave a clear and candid explanation for the slowdown in private banks. According to him, a large part of the story can already be found in the valuations. “A lot of it is price,” he said, noting how domestic institutional investors (DIIs) have been the regular buyers of bank stocks, while foreign institutional investors (FIIs) have divested from them. “When financial institutions sell, especially a passive fund, 30-35% of that is the banking space.”

Subramaniam pointed out that DIIs are consistently faced with a choice: allocate to attractively valued public sector banks or to private banks that are ‘priced to perfection’. That perfection, he explained, leaves virtually no room for error. “A little bit of bad news, a little bit of slowing growth, it means they’re always in a tense situation.”

Public sector banks, on the other hand, still look cheap on a price-to-book basis and are benefiting from multiple tailwinds. He highlighted three key drivers for the PSU revival: strong government-led reforms, likely moves to increase the capital limit to 49%, and a renewed consolidation phase that could make select banks globally relevant. This, he said, will help them “gain greater access to international capital.”

The coming private capex cycle, with early momentum already visible, could further tilt the balance. With SMEs and MSMEs ramping up expansion, PSUs are best positioned. Private lenders, Subramaniam noted, have had mixed experiences in lending to this segment, with NBFCs also feeling the increasing pressure from NPAs. “Public sector banks know that space well and know how to use that space.”

Despite the relative underperformance of private lenders, he does not expect operational weakness. With credit growth already in double digits, near-term profits should remain solid – although high valuations leave “very little” room for error.Passenger vehicle prospects: a short-term pause before another upcycle
On the passenger car front, sentiment remains constructive even as momentum begins to cool during the holiday season. Subramaniam acknowledged that market leaders like M&M have dominated the story, but the broader PV segment is entering a predictable respite.

“They have seen a good uptick in the festival season. Now there will be a brief lull,” he said, adding that demand will revive strongly in February and March. Depreciation benefits toward the end of the fiscal year typically drive billing, and historically, “March and then the first two weeks of April… are very strong months for passenger cars.”

Any short-term softness, he suggested, may actually provide an opportunity. With a GST rate cut expected to be implemented through the system in the first half of next year, the segment could see continued support. “Any temporary lull can be a good time to accumulate,” he added.