Trading and Sales Market Commentary:Asset Quality Pressure Persists,Switch out of Indian Public Sector Banks
In response to a balance sheet ‘clean-up’ exerciseunder the Reserve Bank of India’s directive, Indianbanks’ results have been disappointing for the March2016 quarter, where higher provisions and drops inprofits have become the norm; the worsening trendfor banks will likely continue for the rest of the year.
Amongst them, we believe Public Sector Banks (PSB)will be under more pressure than the privately-ownedones, due to their higher exposure to stressedsectors and their weaker capital ratios.
Public Sector Bank $ bonds trade close to their YTDtights, we think the worsening credit trend is not fullypriced-in. We recommend investors to:
- Switch out of PSBs into Quasi-Sov CorporatesSBIIN into OINLIN, ONGCIN, NTPCIN or BPCLIN。
- Switch out of State Bank of India into ICICISBIIN $ 19, 24 into ICICI $ 20, 26.