Citywire A-rated Rahul Chadha is putting significant emphasis on India's private banks as they look set to be the biggest winner from the country's wide-ranging reforms drive.
Speaking to Citywire Selector, Chadha, who currently has 33.5% of the Mirae Asset India Sector Leader Equity fund allocated to financials, said tech advancements will also aid the sector.
‘Our exposure is still largely in private sector banks as we believe reform in governance and accountability along with a thrust towards technology is what is required to stem the perennial loss in market share for the public sector banks.’
The Indian government recently announced recapitalisation plans for public sector banks to the tune of $32.5 billion over the next two years, $20 billion is set to come from bonds while $8-9 billion will be raised from the stock market.
‘Between $3-4 billion will also be taken from the Union budget, solving the problem of under-provisioning and inadequate capitalisation for these banks.
‘The recapitalisation move, however, is a bold one and would help to negate the short-term pain of demonetisation and GST (Goods and Service Tax) implementation, as the system again embarks on a growth path.
'With the banking recapitalisation and GST done, the Modi government in 2017 has also silenced its critics who maintained that the regime was only focused on incremental reforms.’
Chadha currently holds positions in HDFC Bank (7.4%) and Kotak Mahindra Bank (3.1%). He said, along with the effective bankruptcy law put in place earlier this year, new measures will help eradicate bad loans plaguing the system.
‘On the asset disposal side, we believe that a 50-60% haircut would be enough to attract strong players to bid for distressed assets in steel, power, and telecoms.
‘Post the clean-up of the system, the public sector banks accounting for nearly 70% share, would be forthcoming to take on fresh lending. This coupled with the government’s infrastructure focus would provide the much-needed growth impetus to the economy.’
Over the three years to the end of September 2017, the Mirae Asset India Sector Leader Equity fund returned 40.52% in Indian rupee terms. This compares with a 27.47% rise by its Citywire-assigned benchmark the Nifty TRI, over the same time period.