We do not see big revival in banking: Shankar Sharma

In a chat with ET Now, Shankar Sharma & Devina Mehra say post Vijay Mallya episode, suddenly anybody who has defaulted or owed money to banks is a thief or something. That is a very wrong thing

ET Now: What is your view on banking stocks?

Shankar Sharma: We do not like banks as a general business. Some of them have seen expansion. We have liked HDFC Bank from the time it was listed in 1996.

Devina Mehra: We had brought out a report right then which had a baby and a Arnold Schwarzenegger on the cover saying this is where it is now and this is where it is going to be.

Shankar Sharma: You should ask Aditya Puri or Shailendra Bhandari about it.

Devina Mehra: Everybody in HDFC Bank still remembers that report.

Shankar Sharma: You should ask Aditya Puri and Shailendra Bhandari about that report and they will tell you.

Devina Mehra: In banking, we do not see a big revival simply because also we do not see credit growth reviving big time. That again comes from talking to companies and you find that companies are scared of taking on debt ever again. We may talk about taking on risk and investing etc. but most promoters are in that mode. Once I get out of this debt trap, I am never going to take any debt or any significant debt ever again and that will cause the balance sheet recession which can really take a generation to go through the systems.

Shankar Sharma: We know a promoter whose son has seen his father get hounded by calls from bankers or even bankers visiting the home for the last six years. The son is 14 now. He started seeing that when he was 8. Imagine what impression it creates on a child’s mind to see the parent being under so much stress day in and day out. You think that father is ever going to take a bunch of loans to set up a plant? No way.

Devina Mehra: Also now the whole mindset has become that anybody who has defaulted on a debt has stolen the money in a sense. This may not be true at all. It might be bad business decisions, it might be just a change in commodity prices.



ET Now: Pricing power has gone, commodity prices have come down, prices have changed.

Shankar Sharma: This is a very negative thing that has happened post Vijay Mallya episode. Everybody has an opinion and suddenly anybody who has defaulted or owed money to banks is a thief or something. That is a very wrong thing.

ET Now: How should one invest in this new world? Interest rates are low. The central banks will follow a loose monetary policy, they are committed to do that. Earnings are not going anywhere, deflation risk is real and growth is going to be a precious?

Devina Mehra: Some time back when the consensus was that US would raise interest rates and go on raising interest rates, we were of the opinion that is not going to happen. You have to go back to the psychology of the nation and because of that institutional memory, great depression is one mistake they do not want to repeat. They might make other mistakes but they do not want to raise rates and hence again tell other countries that they must take the pain but they would not do it themselves. So now it is a tough environment for investing. In India on the fixed income side, the returns are still not too bad. So I would still think that a significant part of your portfolio should be on the fixed income and whatever you can lock in at this stage. Otherwise it is still the small and medium caps, you should look at in the Indian markets.

Shankar Sharma: The interesting data we were looking at is since 2008 how many companies have churned out to the Nifty 40% of the Nifty is something like that.