After the recent market correction, veteran investor Prashant Jain believes that one sector stands out as a potential long-term opportunity, large private and leading banks.
While investors continue to debate multiple market narratives and sectors, Jain believes large banks have become significantly undervalued compared to their growth prospects, profitability and return ratios.
Large Banks: A Sector That Has Lost Its Premium
According to Jain, large banks have gone through a major valuation reset. A sector that was once among the most favoured areas of foreign investors has faced heavy selling pressure in recent times.
“Large banks, there is nothing wrong there and they have derated significantly,” Jain highlighted.
Five years ago, several leading banks were valued at around 4–5 times price-to-book value (P/B). Today, many of these businesses trade closer to 1.5–2 times book value.
Although growth rates and return ratios have moderated compared to the past, Jain believes valuations now provide a better risk-reward opportunity.
Credit Growth Picking Up
One of the key reasons behind Jain’s optimism is the improvement in credit growth.
He pointed out that the latest credit growth numbers were around 17%, suggesting that lending activity is gaining momentum.
For banks, healthy credit growth can act as a major earnings driver because it helps expand loan books and supports revenue growth.
Rising Bond Yields and Working Capital Cycles
Jain also highlighted some near-term challenges, including slightly higher bond yields and pressure on working capital cycles.
With supply chain disruptions and some increase in commodity prices, businesses may require more working capital financing. This could potentially increase demand for bank credit.
However, Jain views these factors as manageable within the broader long-term opportunity.
Foreign Selling Creates Pressure, But Could Also Create Opportunity
A major reason behind the weakness in large banks has been aggressive selling by foreign investors.
Jain acknowledged that this selling pressure may continue in the short term, making the sector volatile.
However, he believes that over a longer period, strong banking franchises with solid profitability should reward investors.
“Over time these banks should turn out to be good investments,” he said.
Why Jain Likes Banks for the Long Term
The core argument is simple: quality businesses are available at much lower valuations than before.
Large banks today may not have the same explosive growth rates they enjoyed earlier, but Jain believes their return on equity (ROE), return on assets (ROA), balance sheets and earnings potential remain attractive relative to current valuations.
For long-term investors, Jain sees the banking sector as an area where pessimism may have created an opportunity.
The market correction has pushed down valuations, but according to him, the underlying businesses remain strong, making large banks a sector worth watching closely.
