Bank stock valuations have been hit due to exposure to Power sector and uncertainty related to availability of fuel and PPAs. However if one looks at the groups that are developing these projects, are these worries really justified?
Biggest capacity expansion is by NTPC, followed by RPower, Adanis, Tata Power, Lanco, Jaypee, Jindals etc. Only Lanco maybe considered weaker amongst this and could cause problems to Banks. However it is foremost in terms of capacities actually commercialised and to be commercialised.
Have any of these groups really defaulted to the banks?
Ability of analysts to swing the mood of institutional investors on the basis of some theme (i guess mainly to market their research) is really amazing. Some broking houses actually held roadshows to assess the exposure of banks to power sector and impact that it would have on their earnings and balance sheet.
And for most banks exposure to power sector is less than 5% of their total advances. Power projects typically will have annuity of 25-30 years so a couple of bad years can really be made up.
After more than 25 years, i still cant understand how and why market chooses to react so violently to issues like this and completely decimate the valuations. Maybe because i belong to the school of thought who thinks equity is for the long term and quarterly earnings are less important than the long term prospects.
