Indian banks have entered into a credit–tightening cycle, according to BofA. Managements of the banks expect further cuts in their earning per share. This is happening at a time when system liquidity surplus is declining, Nomura said.
Now the focus will be stressed at the asset quality issues in the microfinance space, where normalisation of asset is at least two or three quarters away, BofA said in a note. Small and mid–sized private banks will witness more reduction in their EPS compared to large private banks. Public–sector banks will be least impacted, BofA said in a note.
BofA met the senior managements of Indian banks and other industry players.
BofA's Safe Picks
Axis Bank Ltd.
ICICI Bank Ltd.
BofA's Underperforming Stocks
AU Small Finance Bank.
IDFC First Bank.
Credit growth in the banking system moderated to 12.8% on the year as of October, as growth moderated across the segments, Nomura said citing the Reserve Bank of India's sectoral credit growth data.
Liquidity surplus moderated to Rs 0.5 lakh crore as of Nov. 30, because India's foreign exchange reserve declined, and currency circulation increased, Nomura said.
In this scenario, position in stocks of the lenders who have bigger underwriting capabilities and a lower exposure to segments, where credit costs, may rise. The brokerage also prefers banks that have lower deposit–led growth pressures.
Nomura's Top Picks
ICICI Bank.
State Bank of India.
Kotak Mahindra Bank Ltd.
The Nifty Bank started the day in green. It rose as much as 0.78% to 52,216.85. It was trading 0.71% higher at 52,487.95 as of 09:56 a.m., compared to a 0.20% advance in the NSE Nifty 50.
Most bank stocks increased during opening hours of the market. Canara Bank and Bank of Baroda stocks were leading gains among peers.
Meanwhile, shares of ICICI Bank and Kotak Mahindra Bank fell the most.
The market–cap of bank stocks rose Rs 36,168 crore to Rs 43.34 lakh crore as of 09:56 a.m.
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