Good time to invest in BFSIs, charts suggest once in a decade investment opportunity

By Aishvarya Dadheech

BFSI is presenting a unique investment opportunity as market participants panic about severe post COVID impact. The market is expecting a huge impact on asset quality due to the economic slowdown, job losses and stress on SME/MSME. However, a lot of this pessimism is already priced in.

One should invest in BFSI names that have the following traits: 1) Survived similar crisis in the past (GFC, IL&FS default) unscathed; 2) Strong Balance sheet with high capital adequacy, positive ALM and good asset quality; 3) Discreet lending practices like low LTV and high insourcing; 4) Ability to price the underwriting risk well; 5) Superior processes, which enable lenders to gain market share in a crisis.

The key mantra in equity investment is to invest when your margin of safety is the highest. That’s when the biggest money is made. Currently, the valuations have become attractive for the broad Bank Nifty universe (PB ratio of 2x compared to 3.4x in Dec-19) providing a healthy margin of safety. A wise investor once said – be greedy when others are fearful. This is the worst period we’ve been in the last 40 years (GDP decline) and the situation will get better from hereon. What better time to invest in the growth engine of the economy!

(Aishvarya Dadheech is the fund manager at Ambit Asset Management. The views expressed are the author’s own)