INDIA’S PUBLIC BANKS: THE 500% MARKET MYSTERY

India’s public sector lenders look poised for another phase of wealth creation

- Abhishek Mukherjee

A file photo of Punjab National Bank. In recent months, there has been a spike in the share volumes of PSU banks.

(REUTERS)

His name often crops up in India’s gloriously unhinged political discourse, yet it is easy to forget that George Soros ranks among the greatest investors of all time.

His flagship multi-billion dollar hedge fund, Quantum, once the world’s largest, delivered a compounded annual return of about 30% for three decades beginning in the 1970s, outperforming Wall Street titans like Warren Buffett.

In his bestselling book The Alchemy of Finance, Soros recounts an investing episode which offers a window into his mindset and tactical nous.

In the early 1970s, banking stocks were among the least favoured by investors. Banks were seen as stodgy, old-school institutions which had still not recovered from the traumatic failures of the Great Depression. Regulations were onerous and there was hardly any innovation or fresh thinking in the industry.

But beneath the still waters, Soros spotted pools of opportunity. Some new bankers, educated in business schools, were entering the workforce, injecting fresh vigour into the sector. The banking industry was beginning to see mergers and acquisitions, and regulatory winds too began blowing in its favour, leading to the launch of some new products.

Realizing the sector was at the cusp of a transformation, Soros decided to strike while the iron was hot, and loaded up on a few aggressively managed banks. The bets paid off handsomely and he made about 50% on his bouquet of bank stocks in a short period.

Imperfect as they are, historical parallels often serve as useful guides in markets, Which is why many participants are playing close attention to the recent spate of headline-grabbing moves in India’s banking sector. But while the usual stars bask in the glow, the real drama could well be building up away from the spotlight.