Every sector has witnessed a re-rating on the market in the last couple of years. But the underlying reasons are different. These reasons are important as they determine the longevity of the re-rated valuations. Re-rating could have been for two reasons: One, a government policy push that caused a clean-up and removal of headwinds. Or, two, the sector recovered due cyclical reasons. For PSU banks, which saw strong re-rating in the last one year, it was a mix of both reasons. While the government strengthened the regulatory system, the overall economic growth helped credit offtake. Now, after the rally, the question is: Should you sell, hold, or increase exposure? The answer lies in looking at two critical things.
