Indian Banks Clean Up Their Books, US Banks Succumb to Interest Rates

Firstly, let’s discuss the Indian banking industry

The Indian government has been taking measures to clean up the banking sector for several years now. The Reserve Bank of India (RBI) has been working to ensure that banks have adequate capital and liquidity to absorb losses from non-performing assets (NPAs) and to prevent a repeat of the financial crisis that occurred in 2018. The RBI has also implemented the Insolvency and Bankruptcy Code to help banks recover bad loans more efficiently. As a result of these efforts, most of the top banks in India now have NPAs of less than 2%, which is a significant improvement from previous years.

The US Banking Crisis

Moving on to the US banking industry, the recent volatility has been attributed to the pressure from interest rates. As the economy continues to recover from the recent contagion in the US, investors have been rushing back into the Treasury bond market, which has caused yields to cool down. This has put pressure on banks, as they have lesser deposits to deal with the current crisis and are being forced to help bail out peers. However, the good news is that this sequence of effects will lead to lower inflation in the coming months.

The Federal Reserve may no longer need to increase rates going forward, which could help stabilize the market. The highly anticipated Federal Reserve Meeting is scheduled for today, 22nd March 2023.

Cruise Market Volatility with SIPs

Lastly, let’s talk about Systematic Investment Plans (SIPs). SIPs are a popular investment option in India, where investors can invest a fixed amount of money at regular intervals. The current market conditions present an ideal opportunity for investors to take advantage of the ups and downs in the market. By investing in SIPs, investors can benefit from rupee-cost averaging, which means they can purchase more quantity when the market is down and fewer units when the market is up. This can help to reduce the impact of market volatility on their investments and lead to long-term gains.

Overall, the global banking industry is facing a period of volatility, but there are opportunities for investors to make smart investment choices. How so?

Well, experience teaches you when to buy and strengthens your conviction! I have been an investor since 2010 and till 2019 the Nifty has corrected 8 times by over 10%
Each of these times were a great opportunity to invest.
Skeptics will always find reasons to worry- you can either worry with them or capitalize on it!

Lets take a look at the different corrections that we’ve come to see over the years

• May 2010 – June 2010: The Nifty corrected by around 16% due to concerns over the European debt crisis and weak global cues.

• November 2010 – December 2010: The Nifty corrected by around 11% due to high inflation and rising interest rates.

• August 2011 – December 2011: The Nifty corrected by around 26% during the bear market mentioned earlier.

• January 2013 – February 2013: The Nifty corrected by around 12% due to concerns over the Indian government’s fiscal deficit.

• May 2013 – September 2013: The Nifty corrected by around 11% due to fears of a tapering of quantitative easing by the US Federal Reserve.

• August 2015 – February 2016: The Nifty corrected by around 22% due to concerns over the Chinese economic slowdown and falling commodity prices.

• January 2018 – March 2018: The Nifty corrected by around 10% before the bear market mentioned earlier.

• September 2018 – October 2018: The Nifty corrected by around 14% due to the liquidity crisis in the Indian financial sector.

Between 2010 – 2019: I was able to generate a CAGR of roughly 33% from my portfolio.
I managed a portfolio of just 4 stocks which I thought were winners and held onto them through all the volatility and kept accumulating them.

Here’s a detailed timeline of my holdings

• 2010 to 2013 only BKT
• 2013 to 2016 – BKT, MPHASIS
• 2016 to 2019 – BKT, MPHASIS, UNOMINDA
• 2018 onwards- BKT, MPHASIS, MINDA, JKPAPER

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Craving Alpha is a SEBI Registered Investment Adviser (SEBI Registration No. INA300017038). The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best of our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.