Earnings growth may slow in FY25, but key sectors will hold value: Sridhar Sivaram

All large private sector banks were eliminated. Are you climbing the ladder on the second or third rung?

And congratulations for this conversation with PSU banks. They have been operating for the last 3-4 years, overtaking private sector banks. Can they keep doing this?

Sridhar Shivaram: I like the big ones.

So let me put some numbers into perspective. In FY21, the profits of the top seven PSU banks were around Rs 30,000 crore. Last year ended with a profit of Rs 1,40,000 crores. I’m talking about profit after tax. These banks, their profits grew faster than the share price. Anyone and everyone, including SBI. Profits are growing faster than stock prices.

In fact, this means that their value has decreased over the last three years. Now how do I see it? I mean, of course they did well. So now we’re a little more selective. So we still find PSU banks that are of a reasonable size, have 20% plus ROA and are trading at one time.

So I see no reason to sell some of them as they give me extremely good numbers. Will this get them more re-evaluation? Probably not, but if earnings increase by, say, about 15-18%, I should get that return on the stock.

Of course, the starting point in November or December 2020 was so absurd for us. That is, we bought them for 0.3 books each. Those or once in a lifetime when you get such opportunities and you have to be brave to buy them. This is easier said than done.

I know many of my fellow fund managers who said you were making a big mistake. And now many of them have power supplies in their portfolio. I’m not complaining.

Each of us makes mistakes. But these banks have simply come a long way. I mean, when you meet some of these CEOs, you just feel “wow”, they talk like HDFC Bank used to do, you know, in their heyday. They want to increase their profits quarterly and they want to increase their profits year-on-year. So they create contingent reserves to ensure that profits don’t look ridiculously high. So I think they’ve come a long way. We are still optimistic about some of them, but not all of them.