According to Jefferies, most marquee financial stocks are trading at attractive valuations due to the recent sell-off.
Is trading at 2.2 times Price to Book (PB) while HDFC Bank is at 3 times. Axis Bank PB is at 1.6x, 1.3x and Stat at 1.2x.
“We see favorable risk-reward for banks with ICICI Bank and HDFC Bank given a growth rebound and fair valuation,” Jefferies said in a note.
also with Bank credit Growth has steadily increased by 7% versus 5-6% earlier this year, reflecting growth in retail demand, improved economic activity and inflationary pressures on demand for working capital. According to the brokerage house, with the improvement in the corporate balance sheet, corporates are increasing investments in sectors like steel, roads, PLI-scheme; SME lending appetite may improve.
“These could drive growth in bank credit by as much as 10% over the next 12 months,” said Jefferies’ note. “In the financial year 2011-24, we see it capping 17% in core operating profit for private banks and 8% for PSUs.”
Banks have managed asset quality well with slippages and restructurings under control. Most analysts tracking banks say that going forward, the NPA ratio will come down on account of less slippage, higher recovery, loan write-off and comfortable provision cover.
As per the note, “With low restructuring and quality of ECLGS-loan holding-up, we see credit cost rising from 2.2% of average loan in FY2011 to 1.5% in FY2013-FY24.” “If banks dig into their buffer provisions, it will support almost doubling of income for the sector in FY 2011-24.”
Meanwhile, while there are some concerns over the impact of fintech on banks’ fee pools, Jefferies believes the impact is limited given the diversified fill pool, scope for fee hikes from SMEs and the retail credit segment.