As global uncertainty and rising inflation risk continue to sour investor confidence in markets, Jefferies has come out with a note on the banking space and how it might feel the heat of the Middle East conflict, at least over the medium term.
The brokerage firm has remained bullish on Indian banking space but has reduced target prices across the board, citing potential earnings slowdown due to the wear in Iran. It further trimmed profit estimates for banks by about 2-4% for FY27, factoring in the slightly lower loan growth, narrower net interest margins, lower treasury gains and higher credit costs.
Jefferies believes large private sectors banks could be better positioned to withstand the Iran War blow, compared to public sector banks as well as smaller lenders, which are expected to see sharper cuts.
Keeping that in mind, the brokerage has maintained its 'buy' rating on Axis Bank, even raising its price target to Rs 1,660 from Rs 1,550. Elsewhere, though, Jefferies issued sharp price target cuts, including in ICICI Bank, where the target price was cut from Rs 1,730 to Rs 1,670 even as the firm maintained a 'buy' rating.
HDFC Bank also continues to be rated 'buy', though its target price was cut from Rs 1,240 to Rs 1,050, whereas IndusInd Bank's revised price target stood at Rs 1,000, compared to Rs 1,100, despite the 'buy' rating. Kotak Mahindra Bank retained its “Buy” rating, but its target was cut to Rs 450 from Rs 530.
As far as public lenders are concerned, Jefferies maintained a 'buy rating on State Bank of India with a target price of Rs 1,300. Punjab National Bank remains a “Buy” with a target price reduced to Rs 134 from Rs 150, while Bank of Baroda was maintained at “Hold” with a target price of Rs 316, down from Rs 325.
Jefferies kept a “Buy” on IDFC First Bank with a target of Rs 82 and on AU Small Finance Bank with a target of Rs 1,200.
Despite the cuts, Jefferies said banking valuations are near COVID-19 lows, with Nifty Bank trading at about 1.4 times one-year forward book value, making the risk-reward attractive. The firm has picked HDFC Bank, Axis Bank, SBI, ICICI Bank and Kotak Mahindra Bank as top picks in the sector.
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