Overall, the brokerage believes that large-cap private banks have a better risk-reward than others in BFSI, as the government loosens its purse strings, improving the banking liquidity coupled with the robust underlying credit demand.
Its top picks include ICICI Bank, Axis Bank, State Bank of India, Bank of Baroda and amongst NBFCs the brokerage likes Cholamandalam Finance and Poonawalla Fincorp.
The brokerage has presented the key trends and takeaways from conference calls for the BFSI space post the December quarter results. Let’s take a look.
Large private banks: The brokerage noted that private banks’ domestic loan growth was faster than that of public-sector banks. On the higher base, unsecured lending grew slower than in Q2. The NIM compression trend continued in Q3. The highlight from the concalls was that incremental delta in NIM would be lower as re-pricing of deposits is largely through, it further stated. Liquidity on the balance sheet was sequentially stable in the form of LCR, except for HDFC Bank. Headline asset quality was stable despite the q/q rise in slippages due to increased slippages in agri, added Anand Rathi.
Public sector banks: Public sector banks’ loan growth was slower than that of the system, except for SBI. NIM pressure was lower than that of private banks, said the brokerage. Overall profitability was enhanced due to favourable credit costs. Public sector banks are still important plays on the yield curve softening, argued the brokerage.
Old private sector banks: Old private banks’ loan growth was faster than that of public sector banks, though slightly slower than that of private banks, noted the brokerage.
Interestingly, retail growth was faster for peers despite Q3 being seasonally strong for the SME segment. Improved asset quality continued, it pointed out. NIM pressure was seen across the segment. Overall profitability was strong on account of favourable credit costs. Liquidity on the balance sheet was strong in the form of LCR, observed Anand Rathi.
NBFCs: Loan growth for most of the NBFCs was robust, led by consumer finance and unsecured lending, driving the strong NII growth, informed the brokerage. The rise in cost of funds was not as pronounced for NBFCs in Q3 as for banks. With tighter liquidity and high short-duration rates, banks’ Q4 NIM could soften somewhat, it added. A few NBFCs had higher provisions in Q3. For MFIs, AUM growth and profitability were robust, however, some stress on asset quality was seen in MFI with exposure to Tamil Nadu due to floods, stated the brokerage.
Stocks
ICICI Bank: The bank reported a slightly better set of figures; however, its stock positioning is not as high as that of HDFC Bank, noted the brokerage. What stood out was the commentary that NIM compression would further slow down in Q4; the retail deposits rate has broadly stabilised and the bulk of the repricing is done. The bank has no branch addition pressure, unlike HDFC Bank; its C/D ratio is the lowest of large-cap private banks, informed Anand Rathi. At the CMP, the stock trades at 1.92x FY26e BV (adj. for subsidiaries at ₹123) for a 2.3 percent expected RoA. The brokerage has a Buy on it with a target price of ₹1,234 (21 percent upside potential) and believes that ICICI Bank is the new gold standard in banking.
Axis Bank: At first sight, the bank reported very good figures. Retailisation of assets continued with all-around growth and is expected to continue growing faster than the system. However, the devil is that Q3 deposit growth came largely from wholesale deposits. Similar to the commentary on ICICI Bank, the intensity of NIM reduction would reduce from now.
Overall, the bank’s figures do not match ICICI’s; however, given the unknowns in HDFC Bank, Axis would likely be bought into. The brokerage has a Buy on the stock. At ₹1,089, it trades at 1.8x FY25e BV and 1.5x FY26e BV, adjusted for the value of subsidiaries at ₹57.
SBI: As per the brokerage, the lender’s loan growth momentum improved. Open to all forms of capital, Anand Rathi believes that the bank may hit the market in Q4 for equity. NIM is likely to be stable. It maintains a Buy on the stock; and would buy into the weakness, if any.
Chola Fin: According to the brokerage, prima facie, results show disbursement growth has slowed to 26 percent YoY, largely in new businesses. AUM growth was 40 percent and NIM was stable QoQ at 7.4 percent while credit cost improved QoQ to 1 percent. Despite equity dilution, RoE was close to 20 percent, noted the brokerage. Chola is its preferred pick with a TP of ₹1,425.
Poonawalla Fincorp: There is an easing of competitive intensity after risk-weight changes. At 38 percent, the company is sitting pretty, said Anand Rathi. Despite interest-rate tightening, its CoF was stable and is likely to stay in the same range, which is no mean feat. Growth guidance retained, with new products on the anvil. New sourcing mix pristine. Credit cost guidance was retained, added the brokerage. It has a Buy on the stock with a TP of ₹595. The valuations are premium on sustainable high-growth visibility, it stated.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Published: 13 Feb 2024, 04:11 PM IST