Indiabulls research: Financial Services 2Q 2011 preview: Mixed bag

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Financial Services 2Q 2011 preview: Mixed bag

We expect banks to maintain their QoQ NIMs, while other income is expected to be under pressure due to subdued treasury profits because of hardening of G-sec yields by 40bps QoQ. We expect their fee income growth to be in line with growth in advances, while income from sale of third-party products would be under pressure due to changed ULIP guidelines. Asset quality should to be better than earlier expected on the back of an improving macro economy, with slippages lower than earlier guidance. We continue to prefer ICICI Bank and PNB though we believe valuations across the sectors have run the course in the short term. We believe that there are too many expectations built in the stock prices and valuations in most of the cases are above 1.5x standard deviation over the 6-year average multiples. Hence we would wait for the quarterly trends to see the actual performance to review our target prices and recommendations.