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Chris Wood’s Greed and Fear explains why PSU banks are outperforming private lenders


Christopher Wood, global head of equity strategy at Jefferies, in his latest Greed & Fear report pointed out that the public sector banks have outperformed the private sector banks by 153% since November 2020 and by 14% YTD, with the latter trading sideways despite reporting good results.

The Nifty Private Bank index is up 2 percent year-to-date, as against a 16.3 percent gain in the Nifty PSU Bank index. In comparison, the benchmark Nifty Bank has added less than 1 percent YTD.

Both indices recently hit their record high levels, in line with the benchmark indices. The Nifty PSU Bank hit its all-time high of 5,396.85 on October 3, 2023. It has now soared over 54 percent from its 52-week low of 3,276.10, hit on October 25, 2022.

Meanwhile, Nifty Private Bank hit its peak of 23,955.00 on September 15, 2023. It has now advanced almost 15 percent from its 52-week low of 19,592.90, hit on March 16, 2023.

As per the report, the overall non-performing assets in the banking system in aggregate have improved dramatically, down from 11 percent to 3.7 percent since FY18, in large part as a result of the fundamental change brought by the Insolvency and Bankruptcy Act of 2016. This sea change has led to a re-rating of public sector banks in the stock market, it highlighted.

Furthermore, the health of the banking system has improved significantly as a result of the recovery in residential property prices in the past two years even as the office property values have lately stopped falling, the report added.

Despite the overall improvement in the banking space, the outperformance of public banks is raising some questions. This is causing some investors to question why the top-rated banks are not performing, Wood pointed out.

“This may simply reflect the fact that they are “over-owned” and certainly GREED & fear’s various portfolios are heavily weighted in this sector. (23 percent in private sector banks in the India portfolio and 15 percent in the Asia ex-Japan long-only portfolio). Still GREED & fear can easily identify a new class of investors to invest in the future in India’s leading banks as domestic demand proxies. That is global funds, as opposed to emerging market funds. The former have barely invested in India as yet and have, by and large, stopped investing directly in China,” explained the report.

Finally, it is also worth noting that the so-called CASA ratio, measured as deposits at current accounts and savings accounts as a percentage of total deposits, has been declining, the report added. It has fallen from a peak of 45 percent in Q4FY22 to an estimated 40 percent in Q2FY24, based on the banks covered by Jefferies’ India.

On Israel-Hamas War

The political interests of the Israeli government under Prime Minister Benjamin Netanyahu are different from Washington’s, which is why the only plausible positive outcome of the present grim situation would be a realignment of the current Israeli government, triggered by the internal divisions, which would allow for a fresh approach to the whole Palestine issue, it added.

In the last weekly note, he said that markets will continue to try to ignore events in West Asia so long as no invasion is launched. This can even trigger a relief trade in the markets, allowing them to ignore the native implications of uncomfortably high bond yields for a while, he noted.

“If GREED & fear is wrong and the invasion is launched, there will be an immediate negative impact in terms of a spike in the oil price and renewed concerns of a broader regional conflict, concerns which unfortunately will be quite legitimate.

Another alternative view is that Israel is biding its time, waiting for the news cycle to play out while working out the best plan of attack. This is, certainly, entirely possible,” he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 03 Nov 2023, 05:08 PM IST

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.