ET Now: YES Bank, HDFC Bank and Kotak Bank have done well and they form a large portion of your portfolio. How are you analysing the fundamental set up for the private sector banks?
Rupesh Patel: Our view on private sector banks has been constructive since last many years. Our primary thesis is the story of market share moving from public sector banks to private sector bank will continue to play out. The private sector banks relative to their public sector peers have handled credit cycle relatively better, particularly for the ones which are retail focussed.
These banks generate healthy return on assets. Their return on equity ratios are high and they are well capitalised for growth. We believe private sector banks are structural plays and have a long way to go.
On corporate lender side, we have seen disappointment in terms of asset quality from private players as well, but a large part of recognition seems to be there. The recognition part is probably nearing an end and some of them are available at good valuations considering the stress that they are witnessing on the corporate lending side.
We continue be positive on private sector lenders as such.
ET Now: Do you believe there is some merit in construction space given things are improving on the ground and there has been a lot of thrust from the government?
Rupesh Patel: We are positive on the government sector capex and we believe that the private sector capex is still some time away. This is because capacity utilisation levels, despite having improved in recent times, continue to remain on the lower side and in general, balance sheets are highly leveraged.
We are bullish on public sector capex and sectors like roads, railways, urban infrastructure and affordable housing are likely to see meaningful progress. Last year, the road sector awards were upwards of 7,000 kilometres compared with about 2,300 kilometres awards per year over the last five years. On the road front, progress is clearly visible.
The hybrid annuity model which allocates risk in a better way between private sector and government sector has been a success. There are a lot of successful bidders there. Overall, on the affordable housing front too, we have seen a meaningful progress. Railways are seeing good progress as well.
Not only construction contractors but sectors related directly or indirectly to the capex will also benefit.