When asked about his view on PSU banks and whether the rally has more room to run, Sinha said, “There are news events that are happening with respect to the PSU banks. There are news of dilution and more FII participation. So, there are multiple things that are happening that is creating a sentiment which is positive for the PSU bank.”
He added that valuation comfort and market rotation have also played a part in the sector’s momentum. “We were also of the view that given the valuations that they are at there is a possibility that market rotation might start favouring PSU bank, so that possibly is happening,” Sinha noted.
However, he struck a cautious tone on the fundamental front. “If you look at this quarter the performance of profits of the banking sector in general has been lacklustre and there has been a margin compression that has happened largely because of the lower interest rates and overall interest income has actually been slowing to roughly about six odd percent if you look at the entire banking system,” he explained.
According to Sinha, the market is currently factoring in some positive developments and the expectation of margins bottoming out. But he cautioned, “It will be too early to expect a turnaround in performance. We are seeing in terms of the overall credit growth it has been slowing and we will need to see whether this will expand going forward or not.”
Shifting focus to the metals sector, Sinha described it as largely a trading play rather than a structural story. “Metals are generally trading bets. So, if you look at last I would say three years or so, it has actually moved around a steady path,” he observed, adding that metals tend to perform when sector rotation takes place. He also pointed to the role of global market dynamics. “The metal sector is essentially a global sector, so we have seen that there has been a rally in gold and silver, etc. There is certain rub-off effect with respect to copper and other metal space. So, there is a certain amount of correlation trade that seem to be happening,” he said. Yet, Sinha noted that underlying demand remains weak. “If we look at China, if we look at US and other advanced economies, a significant portion of steel for instance goes into construction, followed by autos and machinery. So, these together contribute about 70% to 80% of the total demand. I would say there is no strong traction in these sectors given the global uncertainties that are there,” he explained.
He emphasized that current strength in metals may be more financial than fundamental. “I would say there is a financial trade that seem to be happening how dollar has traded, how gold has traded. So, this correlation is translating into a certain amount of buoyancy out here,” he noted.
From an Indian perspective, he said that “there is a demand for protectionism and high tariffs and also these news keep happening on and off,” but cautioned investors against reading too much into it. Reflecting on past cycles, he remarked, “If we look at past cycles, let us say, we are talking about 2015 where there was a slump, there was European crisis, we saw that notwithstanding the minimum import duty that was given for the steel sector for instance, the steel stock did not do very well in the following years.”
Summing up his stance, Sinha said, “We will need to really look at this as a trading bet. As of now, I do not have any position in the metal sector. So, I am underweight on metals.”
Overall, his outlook suggests that while PSU banks may continue to see near-term rotation-driven strength, the metals sector remains a short-term trading opportunity rather than a structural investment theme.