It seems nothing can stall the fall in bank stocks. There are concerns galore around moratorium and further NPA pressure coming in and that is keeping the stocks at bay, I guess.
Yes you are right. The issue of moratorium is in the back of every investor’s mind. The banking sector would be affected by the outcome of what really happens once the moratorium is lifted because the NPA problems will come in. But having said that, the banking sector has a lot of support coming in from the RBI in terms of forbearance.
The banking sector has raised huge amounts of capital. We also see that between credit growth and deposit growth, the latter has been quite strong. So from a franchise perspective, the banking franchise is doing wonderfully well. While the fall seems to be of a temporary nature, soon the banks will be able to do better when it comes to their financial performance.
Pharma is the only thing that is showing an across-the-board move.
Pharma has been doing quite well for the past few months. The upgrade in the pharma sector from the market is a recognition of the fact that the US FDA pressure has abated a bit as has the pricing pressure in the US market.
Most of the pharma companies over the years have managed to reduce their debt levels. So all in all, the pharma sector was rerating. The rerating is an ongoing process. Even today, most of the pharma companies are up. I expect the rerating to continue for a few more months and we will see most of the pharma companies doing better as we go forward.
The Q1 results of many of the pharma companies have been quite good, robust thanks to the sales in the US markets. That said, Friday’s move perhaps was led by Dr Reddy’s settled its litigation with Celgene Corp for patents for the generic version of a prescription medicine used to treat blood cancer.
Would you like to tell us anything else about the market?
We will see markets reaching to higher levels simply because there is a huge amount of liquidity still in place. The Fed commentary that was there a couple of days ago was in line with this liquidity theme. As the lockdown gets gradually lifted, we are seeing economic activity bouncing back quite sharply.
When economic activity bouncing back meets a liquidity rush, markets are bound to go higher for the time being. The discounting in terms of what multiples should be offered in such a situation will be taken care of probably next year and not now, because one will be able to then find out which are the set of companies that are delivering values and which are the set of companies which are not able to deliver value.
Right now, it is a purely momentum play, liquidity rush meeting the bounce-back in economic recovery and that is causing the markets to go higher. We think it will still go higher in the days to come.