HDFC Bank, PB Fintech, Paytm: What's making Macquarie edgy about India's financial sector

Investors have developed cold feet on India's financial sector, with China finding some favour among them as a good bet, Macquarie said in a report on Tuesday. Chinese market is trading at eight times P/E against India which is at over 20 times P/E, the brokerage said in its note, pointing to stretched valuations. 

The brokerage also attributed its uneasiness over the sector to the recent regulatory actions, adding that it sees dipping loan growth and margins, along with normalisation of credit costs, implying a lower return on assets. 

The brokerage, however, prefers to be long with public sector banks citing lower liquidity position and loan-to-deposit ratio. 

"The trade continues to be long with PSU banks, sell on private sector banks," Macquarie said, adding that investors had a favourable view of general insurance and capital market spaces.

Though the brokerage sees value in HDFC Bank, it's still not time to go long, it noted. Many hedge funds have tried to cover their short positions in HDFC Bank, but investors, in general, are still not confident of the bank delivering good numbers in the near term, the brokerage said.

On One 97, the brokerage said there was no interest till the regulatory dust settles on Fintech's lending arm. 

The brokerage found Shriram Finance to be in a consensus overweight position, while on PB Fintech it anticipated profit-taking at current levels.

Macquarie's takes

HDFC Life: Growth challenges, parent focussed on selling deposits than insurance
SBI Life: Preferred pick
SBI Cards: Consensus sell
View: Growth biggest casualty, long on PSU banks, sell for private sector banks