With the March quarter earnings season just around the corner, HSBC has issued a warning sign for Indian banks and the broader BFSI sector, signalling the lower earnings potential in light of the deepening conflict in the Middle East. The brokerage firm warns that while liability-side funding pressures appeared first, asset-side risks are now starting to emerge.
HSBC adds that regional instability could dampen demand, growth and margins going forward. As such, the firm, in its latest note, has signalled a clear top-down preference for private banks over state-run lenders and NBFCs.
Within the private banking space, HDFC Bank's target price was lowered to Rs 840 from Rs 990, while ICICI Bank was cut to Rs 1470 from Rs 1630. Axis Bank saw its target reduced to Rs 1420 from Rs 1580, and IndusInd Bank was adjusted to Rs 880 from Rs 1110.
Kotak Mahindra Bank's target fell to Rs 420 from Rs 490. Even state-backed giants were impacted, with State Bank of India's target price cut to Rs 1120 from Rs 1250 and Bank of Baroda adjusted to Rs 275 from Rs 340.
The carnage was particularly severe among NBFCs. Bajaj Finance, a retail favourite, had its target price slashed to Rs 920 from Rs 1110, while Bajaj Housing was reduced to Rs 67 from Rs 80.
Chola Finance and Shriram Finance—HSBC's preferred picks in the segment—saw their targets lowered to Rs 1790 and Rs 1050, respectively. L&T Finance and M&M Finance faced steeper adjustments, with targets dropping to Rs 280 and Rs 300, while IIFL Finance was cut to Rs 510.
In micro-lending, CreditAccess Grameen's target was lowered to Rs 1300, and SBI Card was cut to Rs 560. Small finance banks also felt the pinch, as Equitas and Ujjivan both saw targets revised down to Rs 67.
Despite the broad reductions, HSBC highlighted LIC Housing as a defensive sanctuary, noting its steep valuation discount even as its target was trimmed to Rs 590 from Rs 610. The firm maintains a Buy rating on most large-cap lenders despite the significant cuts to their valuations.
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