Daily Voice: Ladderup's Raghvendra Nath on why private banks offer better risk reward

Ladderup Wealth Management managing director Raghvendra Nath says the private banking space offers better risk reward compared to other market segments, as they have not participated much in the recent rally, which has pushed up valuations.

Nath, who has more than 29 years of corporate experience, doesn’t see the general elections, which are expected to be held in April-May, to be a big market-moving event. "The market momentum is driven by the India story, strong economic growth, high liquidity and improving fundamentals of corporates. It has less to do with the impending elections," he tells Moneycontrol in an interview. Edited excerpts:

Do you see headwinds, including rising cost of funds, for banks in the near term?

The banking sector is poised for favourable times, with robust retail credit growth expected to persist, along with an anticipated uptick in corporate loans due to a positive private capex cycle. Housing loan demand remains strong, ensuring a healthy credit outlook.

Most banks in the sector boast clean balance sheets, indicating a high lending capacity. While the cost of funds is expected to increase attributable to slower growth in CASA, there is a good chance that the deposit growth shall align with the healthy nominal GDP growth, supported by increased employment rates and a strengthening business environment.

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While the market valuations have surged, the private banks have not participated much in the recent rally and therefore, offer a better risk-reward compared to the other market segments.

Do you expect rural demand to recover in the coming financial year?

Rural demand generally is driven by the growth in the agricultural sector, which, in turn, hinges on the monsoons. A normal monsoon should improve growth in rural demand. However, some of the rural demand seems to be merging with the urban consumption, as most rural areas are now well connected to towns and therefore, it is quite natural for the people living in rural areas to go to the nearest town for their big-ticket purchases. This consumption is generally not caught by statistics.

With the continued focus of the government to improve social parameters like housing for all, tap water in villages, cooking gas, etc the rural demand shall be better in coming years.

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Do you see the chemicals space gaining earnings strength in FY25?

Earnings stress in the chemical sector is anticipated to spill into FY25, particularly over the next two quarters, owing to the China factor. Even though Indian players have the capacity to compete with Chinese exports, margins will remain strained. This is also visible in the slow inventory movement in the sector.

Are you bullish on travel and tourism which have reported better-than-expected earnings in Q3FY24?

India's travel and tourism industry is experiencing robust growth, propelled by the resurgence of business travel to pre-covid levels and an upswing in disposable income, driving increased travel among Indians. This trend is poised to gain further momentum as rising per capita income fuels both travel and discretionary spending.

The surge in religious tourism adds a significant tailwind to the sector. The travel and tourism sector should continue to grow strongly and is not a short-term trend.

Your top bets for FY25?

The coming financial year shall see more stock-specific movements rather than a broad-based rally that we have seen in the last 10 months. New money has to be moved more cautiously and only in fundamentally strong companies. We should see quality and growth returning strongly as a theme in FY25.

Do you expect the market momentum to fizzle out after the general elections?

Not really. The market momentum is driven by the India story, strong economic growth, high liquidity and improving fundamentals of corporates. It has less to do with the impending elections. In any case, there is high probability that the ruling dispensation will get re-elected with a good majority and is already reflected in the market mood, so we should not see any significant up-move in the markets pre or post elections.

Markets should continue to do well on the back of continued domestic and international flows.

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