Series 67 – Why we remain underweight Banking at ITUS

Last week we discussed the Rural Recovery Theme in Indian markets and the trends we are seeing in this area. In the upcoming weeks, we will share with you some charts that will help us better understand this theme and the factors that led us to believe that the rural economy would continue to grow in the future. This week we had quite a few interactions with our partners and one of a major question that arose in the discussions were the reasons we continue to be underweight in the Banking.

While overall deposit growth has been robust, CASA, the current account and savings account deposits growth have slowed down. The growth in Fixed deposits has been higher which means the cost of funds for the banks would be incrementally higher. The increase in FD’s will decline the NIM margins affecting the profitability of the banks. Top banks haves seen advances growth of 14-20% over the last two years, however their Opex also grow more than 25%, this would negatively impact on their ROA. Additionally, if RBI decides to lower the interest rate, this might also affect the deposit growth, which inturn will impact ROAs of the banks.

These are the prime reasons why we are structurally underweight banking. But we will look at strong bottom up stories to tactically allocate wherever we see opportunities.

The quarterly review of our portfolio is available in the link below-

ituscapital.com/articles/portfolio-review-4q-fy24/

We will come back with more interesting information on the portfolio and outlook on the market in the following weeks.

These weekly episodes are now available in our website for your quick read and you may access the same in the below link.

Weekly Enlightenment Archives – ITUS Capital