Bond inclusion positive for banks; return of FII flows to benefit private banks: Pranav Gundlapalle, Sanford C Bernstein

What would the Indian bond inclusion in the JP Morgan Global Bond Index mean for the money market and the flows? How meaningful could it be for the interest rate environment in India?
Pranav Gundlapalle: I think this whole bond inclusion would be a bigger factor for the liquidity environment. This has been one of the events that the central bank was waiting for before easing liquidity because they did not want to ease before seeing the impact of these flows coming in. So, from a liquidity perspective, this would be positive and it has been one of the biggest overhangs on the banking sector and easing of that would be a positive for the banks.

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On one hand, the private banking space has been doing phenomenally well. If you talk of pure growth in the top five names, the way they have managed their NIMs as well as asset quality, phenomenal work has been done by some but they have been on the receiving end of the FII outflows. How do you think things will change from here? We have got two blowout days by the private banking space in the last fortnight or so. Is it a sign that things are changing?
Pranav Gundlapalle: On the operational metrics, the private sector banks have done phenomenally well. Even from here, we expect them to outperform the public sector banks, both in terms of the EPS growth numbers or even the fundamental metrics as well. What has not helped them from a stock price perspective has been the foreign outflows. And given the high ownership in the private sector banks, I think they have naturally been at the receiving end.