When asked about his views on PSU banks and whether there is more room for the rally, Sinha said, “There are news events that are happening regarding the PSU banks. There is news of dilution and more participation from the FII. So, several things are happening that are creating a sentiment that is positive for the PSU bank.”
He added that valuation comfort and market rotation have also played a role in the sector’s momentum. “We also felt that given current valuations, there is a possibility that market rotation could work in favor of the PSU bank, so that may be happening,” Sinha noted.
On a fundamental level, however, he struck a cautious tone. “If you look at this quarter, the banking sector’s earnings performance in general has been lackluster and there has been margin compression driven largely by lower interest rates. In fact, overall interest income has fallen to around six percent if you look at the entire banking system,” he explained.
According to Sinha, the market is currently taking into account a number of positive developments and the expectation that margins will bottom out. But he warned: “It will be too early to expect a turnaround in performance. We see that overall credit growth is slowing and we will have to see whether it will expand in the future or not.”
Sinha shifted the focus to the metals sector, describing it as a trading play rather than a structural story. “Metals are generally trades. So if you look at the last one, I would say it happened about three years ago, it has actually been on a stable path,” he noted, adding that metals tend to perform when sector rotation occurs. He also pointed out the role of global market dynamics. “The metals sector is essentially a global sector, so we have seen that there has been a rally in gold and silver, etc. There is some rub-off effect with respect to copper and other metals. So there seems to be some degree of correlation trading taking place,” he said. Still, Sinha noted that underlying demand remains weak. “If we look at China, if we look at the US and other advanced economies, for example, a significant portion of steel goes into construction, followed by automobiles and machinery. So these together contribute about 70% to 80% of total demand. I would say there is not strong traction in these sectors given the global uncertainties that exist,” he explained.
He emphasized that the metals’ current strength may be financial rather than fundamental. “I would say there seems to be a financial trading going on, the way the dollar has traded, how gold has traded. So this correlation translates into some level of buoyancy here,” he noted.
From the Indian perspective, he said that “there is a demand for protectionism and high tariffs and this news continues to happen every now and then,” but warned investors not to read too much into it. Looking back at previous cycles, he noted: “If we look at previous cycles, let’s say we’re talking about 2015, when there was a slump, there was a European crisis. We saw that despite the minimal tariffs imposed on the steel sector, for example, the steel stock did not do very well in the following years.”
Summarizing his stance, Sinha said, “We will really have to look at this as a trading bet. Right now I don’t have any position in the metals sector. So I am underweight on metals.”
Overall, his outlook suggests that while PSU banks may continue to see rotational momentum in the near term, the metals sector remains a short-term trading opportunity rather than a structural investment theme.
#metals #sector #remains #trading #play #structural #bet #Dhananjay #Sinha