Don’t see India getting much impacted by tightening or US banking crisis: Jigar Mistry

“So obviously your GDP because you have net exports, takes a bit of a hit. You give up some of the GDP gains but over and above that you actually gain vis-à-vis the lower crude prices and the impact on BOP is not as meaningful,” says Jigar Mistry, Co-Founder, Buoyant Capital.

Can you just set up the context of Nifty, this quarter we have underperformed the Dow quite significantly, what does all of the last 2-3 months event mean for our market?
I think if you look at it in context we are reversing what all were the gains we have had in the last calendar year. So if you look at CY22, Nifty was up about 4% Nasdaq was down 30%, S&P was down 20% odd and ever since they have recovered we have had to give up some of the gains in a relative perspective. But if you take a step back and look at what really transpires when say central banks raise rates across the globe then you find that India is not badly positioned vis-à-vis everyone else. So obviously your GDP because you have net exports, takes a bit of a hit. You give up some of the GDP gains but over and above that you actually gain vis-à-vis the lower crude prices and the impact on BOP is not as meaningful.
And even if you look at the recent banking crisis I think one needs to take into account that RBI has been a lot more vigilant. You have seen over the past week or so analysts have put out estimates vis-à-vis what rising yields mean to their HTM book or even the AFS book.

But if you take that into perspective the impact on Indian banks is unlikely to be as meaningful. So my sense is that yes we are giving up some of the relative outperformance but like to like I do not really see India getting impacted either by the recent tightening that is going around in the world or by whatever the specific crisis that we are dealing with.

The point that you were making about the banking space will you still stick with the likes of ICICI Bank or there is this positive commentary around Kotak Mahindra Bank as well. It is expected to finally come out of the slumber after doing nothing for the last almost two to three years as well. Do you look at some of the PSU banking names and the other smaller private banks as well favourably now?
You can break down the banking sector into three or four large cycles and what is happening across the names you mentioned gets starts getting a lot clearer. So we are dealing with a credit growth cycle, NIM cycle, credit cost cycle and the valuation cycle. Now when you look at credit growth that is reasonably strong across the board and therefore everybody benefits in a tide that is rising. The NIM cycle having obviously NIMs expand when you are raising interest rates and that comes through into your relative NIMs. There you have a mix of asset which needs to be considered but generally NIMs expand and therefore everybody benefits again. A credit cost cycle is a very different cycle and therefore somebody like a Kotak or HDFC Bank which have historically managed their credit book very well, have never seen an adverse credit cost beyond what is manageable. Their price to book multiples have always been at an elevated level.

So after 2015 and the subsequent rise in the corporate delinquency, the banks which were doing very well continued to do well till 2018 odd levels and the other banks actually collapsed. But after 2018 I think the market turned into a view that essentially whatever needed to slip has slipped and therefore going forward what you will likely have is only retail delinquency.

In fact SBI’s retail delinquency is better than HDFC Bank or ICICI Bank a decade into the running and therefore people choose to play this through a valuation cycle. So obviously ICICI Bank which was at one time versus say three or four times for HDFC or Kotak that caught on and HDFC flat lined and earnings moved up. So both of them are now trading at very similar valuations. SBI which was at 0.3 moved up to almost a one-time book and a lot of us had that cycle right. A lot more risky investors played this even through the PSU banks where obviously if the credit incremental credit is not slipping then why not buy banks at 0.2 and 0.1 time price to book and that I think has now largely played out.

From here on I think everything is more or less evenly placed. There are not really the arbitrages which are left to be exploited and I think it depends on what bank and what sort of liability franchise and asset franchise makes you more comfortable.

ICICI, HDFC, Kotak are obviously the ones that we have and like but increasingly I think IDFC Limited becomes a special case because IDFC Bank continues to be in a reasonably good stead. CASA is almost at 50% now, your legacy borrowings is less than 5% and the bank continues to report extremely strong growth.

So IDFC First Bank obviously is the direct play on this but my sense is that we will eventually see the structure collapse which has been announced in fact over several calls very much like we have seen with Equitas or with Ujjivan and I think that similar thing will get played out which will I think make a lot more sense for someone to own IDFC Limited vis-à-vis the bank.