Paytm Is Better Bet Than SBI Cards — Bernstein Analyst Explains Why

One97 Communications Ltd. is a better investment proposition than SBI Cards and Payment Services Ltd. because Paytm will be a direct beneficiary in lending disbursals after asset quality issues bottom out this year, according to Bernstein's Pranav Gundlapalle.

"We are seeing pickup in the margin for payment companies and a stronger volume growth on the UPI front," Gundlapalle, senior research analyst at Bernstein told NDTV Profit. "Once asset quality issues bottom out, Paytm will be a direct beneficiary in lending disbursals."

He compared Paytm's case with credit card issuer SBI Cards, where earnings rebound will happen only after credit cost impact fully plays out.

"Pickup in disbursals will be faster and cleaner for Paytm. In the long term, we are bullish on UPI platforms over credit card business," the analyst said.

Private lenders will outperform their public sector peers in 2025, according to Gundlapalle. "Excess liquidity in PSU banks is gone, their loan growth will dip and converge with deposit growth that is significantly weaker than private ones," he said.

Larger private banks are less exposed to asset quality issues than smaller rivals and hence are more attractive investment option, the analyst noted. HDFC Bank Ltd. is the brokerage's top pick, followed by IndusInd Bank Ltd., Axis Bank Ltd. and ICICI Bank Ltd.

Amid a downturn in bank stocks, Gundlapalle said there was consensus that profitability level over the last 12-18 months was too high and unsustainable so investors were looking at the bottoming out of Return on Assets.

"The key this year is to see when the ROA hits the bottom. For investors, the cue will come when bank management says they have hit bottom," he said.

Bernstein sees banks' ROA hit bottom in June quarter, assuming the Reserve Bank of India cuts interest rate in the first half of the year.

Expectation of rate cut and therefore weaker earnings growth ahead will limit any re-rating, the analyst said.