Are you surprised by the velocity of the market recovery in the last few days?
I am not surprised by the velocity. It is the timing of the velocity, that has surprised me. Markets had fallen steeply over the last two odd weeks and so a bounce was anyway due. That the RBI policy helped that bounce is a little surprise to me.
Why did that surprise you? Generally after events, you tend to get market reactions. Didnt you see any major development in the RBI policy for flows to come?
Frankly, we were not expecting a repo rate hike. Now logically a repo rate hike should have resulted in a selloff in the markets but the markets did not fall and in fact they rose. Now why did they rise? There could have been a few reasons for that. One is that some of the participants had expected even a 50 bps repo rate hike and against that a 25 bps is better.
Secondly, RBI maintained a neutral stance which is again welcomed by the markets and RBIs commentary on bond markets, banks and realty was also taken positively by the market.
So all said and done, these few reasons could have resulted in the markets rallying. As a matter of fact, bank stocks could have been impacted negatively a little due to this. But despite that they are doing well. So, one event is out of the way and that is what the market is looking at.
You like the banking space still. What is the reason for that?
Yes, we like the BFSI space including the NBFCs and the insurance companies. Why do we like banks? Basically, we like the better run retail banks. Most of the loan loss provisions have already been made and because of that, the NIMs could expand going forward.
We are a growing economy. Demand for funds will continue to grow and in a rising interest rate scenarios, the lenders typically see expansion in their NIMs so this could be the reason why the banks could continue to do well and could outperform the other sectors.