Greenshoots of an economic recovery are emerging and emerging fast. Bhel, which has for the last few years, been such an under performer has rallied sharply in the last two weeks, after reporting an increase in order book.
Shareholders who have invested in PSU banking stocks or in capital goods stock like Bhel in the last 2 years, are sitting on decent losses.
However, the situation of these stocks remaining under performers is unlikely to last forever. We believe that in the next 2 years, some of these stocks could easily double in value.
PSU banking stocks may rally
Government owned banking stocks, may see the sharpest bounce. One is that in the next few quarters, we may see an improvement in recoveries, which could lead to much better asset quality of banks.
You cannot keep getting an asset quality deterioration. At most we have may have this quarter and the next, which could be bad for banks. Beyond that it is doubtful. Once recoveries happen and asset quality improves, it could lead to a strong recovery.
Interest rate drop will lead to capex recovery
Interest rates have dropped 150 basis points in the last 1 year. There is a complete likelihood of them dropping even further, if inflation cools. This could lead to an uptick in the investment cycle and recovery of demand.
Consumption demand could also rise, with the 7th pay commission and OROP. With rural distress much lower, due to better monsoons, we could see stocks that have been hammered in the past, leading a sharp recovery.
All in all, PSU banks, infrastructure and capital goods stocks, may see a recovery in their stock prices.