Keep 35-40% of your portfolio in banks and NBFCs: Dipan Mehta

We can look at the market and say boring but the minute we look at the Bank Nifty it is charged up and exciting, what is the right way of looking at things?

I think the Bank Nifty has a long way to go from here and if you look at the entire spectrum of all the sectors this is one sector where there is a high degree of earnings visibility, valuations are still reasonable, you have good quality managements with excellent corporate governance standards, a lot of aggressive managements as well. On the whole I think the way the economy is picking up if there is one sector which captures the growth in the economy it is the banking sector and that is what it is doing at this point of time.

I am very positive on banks and Bank Nifty per se. There is a lot of choices for investors right now and you can take your pick from the entire segment and ride on this particular bull market in the banks.

I think that banks are in for a good time for the next two, three years or so. We heard what Mr Uday Kotak said that this is the Cinderella time for them and I completely agree with that. Rather since the pandemic I have not seen these kind of positive factors coming through all together for the banking industry ever. I would say that at least 35-40% of your portfolio should be in banks and NBFCs.

But when you see stocks like and with all due respect here to the franchise value, all I am saying is they are not the strongest banks whether it is Central Bank or a Uco Bank or perhaps what is happening in . It is like the tail has started wagging the dog and when that starts is not that bad news?
See, it is the thing that rising tide will lift all boats and in situation like this even the weaker banks will tend to do pretty much fine and with the weaker banks like Uco Bank they have the advantage of the price to book also expanding and now earnings stabilising and growing as well.

You could have a good trading opportunity in Uco Bank and a lot of other PSU banks because it is a trading opportunity, a onetime correction from deep discount to a mean reversion kind of a situation which is playing out over here. But when the music stops how to get out I think that really is the important factor over here which investors will have to consider.

What is it that you are making of this OFS news from ? We were just culling out all the government holding in the various PSUs which clearly are the flavour of the year. The government would try and use the frenzy right now in defence or railway stocks to perhaps come up with more OFSs?
I think the government is becoming extremely smart when it comes to divestments. I think they are trying to do it for the last 15-20 years and never really got it right but now it seems that they are really acting like proper investors themselves and trying to exit into stocks which they think have reached fair valuation and I agree with them IRCTC I think has created fabulous value and is quoting at a decent PE multiple.

If you consider the growth rates and the overall dynamics it is pretty much fairly valued so maybe it is a good time to offload some stock over there. When it comes to the railway stocks, the defence stocks or even the PSU banks their judgement and the judgement of the market is that these stocks may have a slightly longer way to move up ahead and this might not be the right time to encash or to get out of these stocks so they are keeping them on hold at this point of time.

I can easily expect the government to step up on their divestment through OFS or otherwise once these stocks are up by 25-30% or so somewhere in 2023 or so. So I think it is pretty much fine and that is what you do when you need to raise government resources and which should be done in an intelligent manner and that is what they are doing at this point of time.

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