Why Banking Stocks Are Key Bets For Aditya Birla Sun Life AMC—BQ Edge

Aditya Birla Sun Life AMC sees banking stocks as potential winners of structural growth.

Cautious start on Dalal Street. Image used for representation.
Cautious start on Dalal Street. Image used for representation.

The banking sector will be a long-term theme as it shows potential for higher earnings and valuations for larger lenders, along with loan growth and return on equity, according to Aditya Birla Sun Life AMC.

To deal with the Covid-19 impact, banks preemptively increased provisions. The recovery in corporate asset quality helped banks during the pandemic, and currently bank non-performing assets are lower than March 2020 levels.

Banks will be a key theme in the years to come as return on assets and return on equity are expected to reach decadal highs over FY23/FY24, Mahesh Patil, chief investment officer; and Dhaval Gala, senior investment analyst at Aditya Birla Sunlife AMC; told BloombergQuint's Niraj Shah at a BQ Edge event.

Loan growth could pick up to high single digits in FY22, and double digits in FY23, according to Patil and Gala. With six-seven large lenders getting additional market share, earnings and valuations could rise, which could benefit banking stocks.

Key long-term investment themes in the banking, financial services and insurance space, according to the asset management company, are large lenders who will continue to gain market share, fintech stocks that have emerged in India, and select non-lending financials, which they consider to be “a structural growth story and a play on financial savings”.

Watch the full interview here:

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