The credit cycle has just turned. Going ahead, there will be a lot of demand for money. The cost to income ratio of public sector banks is going to come down. There will be pricing power as there will be demand for money, says Jhunjhunwala
Ace investor Rakesh Jhunjhunwala said on Thursday that he believes that public sector banks (PSBs) are “hopelessly undervalued", and he sees a “very big commodity bull run" in commodities.
Speaking at the India Economic Conclave along with Madhusudan Kela, the billionaire investor said he is bullish on government banks. “I feel the most undervalued banks are in the public sector. The credit cycle has just turned. Going ahead, there will be a lot of demand for money. The cost to income ratio of public sector banks is going to come down. There will be pricing power as there will be demand for money."
Discussing the privatization of public enterprises, he said: “My advice to investors: There will be a run-up in the stocks in which the government is going to disinvest. After the government disinvests, there will be a maturity period of at least three-four years before the new owners can really turnaround those companies into more efficient ones."
To this, Kela added that he did some number crunching recently. According to his research, there were 27 banks in the public sector. Now we are left with 12. The government is intending, there will be eight. “They made all these 27 banks put together make Rs10 trillion of operating profit. They made Rs1.25 trillion of net loss between this period. They made a provision of Rs11.5 trillion. They cleaned it as much as possible," said Kela.
When Kela asked Jhunjhunwala if there is a possibility for investors to make 5-10 times returns by investing in select PSBs, the latter said, “I won’t rule that out".
Starting of a bull run in commodities
According to Jhunjhunwala, it’s time for investors to look at commodities. “I can’t agree more that it’s time for investors to take bold calls in cyclicals. At the moment, we are going into a very big commodity bull run, which is going to last for the next 5-7 years. Right now, commodity stocks are the best bet, especially steel," said Jhunjhunwala.
Jhunjhunwala also said that he is looking for returns between 15% and 24% from equities over the next five years. “There are times when you may get 24%, and there are times when you may get 15%. But I don’t see the average return in equities going to exceed 18-21%," said the ace investor.
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