Amit Rathi talks about PSU Bank reforms and their benefits
Good earnings have boosted valuations in midcap and small cap stocks, says Amit Rathi, Managing Director of Anand Rathi Financial. Midcaps and small caps have risen nearly 40 percent on an average over the last year and are valued better than large cap. Average earnings growth is 20 percent in both segments and investors are taking an over two-year view, and are expecting interest rate cuts which in turn could spur demand for vehicles.
The PSU bank reforms recently are necessary as per Amit Rathi as they will improve capital raising, bank holding structure and gradual reduction of government’s stake
After a keen analysis of prevalent market, Rathi says that the Stock prices are up, on an average midcap smallcap sort of fund which is the reflection of all the sectors done is up about 40-45 percent in the last one year. This, however, is followed by high interest rates. With the midcap index at its peak, people are troubled by incessant evaluations and valuations.
Amit Rathi says, “When you are looking at valuations, it is important to also sort of look at earnings growth in financial metrics. For the odd 100 companies, that we have here, if you look at sort of average earnings growth we are seeing in the range of 20 percent, which is very different from what we are seeing in the large cap companies. People are paying for growth and for better balance sheets. If you look at historical sort of valuation, gap one could argue that midcaps valuations are high. However, the growth metrics at this point of time really support the midcap – smallcap story. “
Lauding the PSU bank reforms, Amit Rathi remarks them as a fantastic move by the government. These steps would help cut down the huge arbitrage raking in the private banking sector in spite of the Non Performing loan goals.
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