Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We maintain our cautious near-term view on India financials, and cut
PTs (primarily multiples) to reflect the new reality. We, however, see a
better 2HCY11, and see this as an (extended) window to build positions.
Stay with the large cap private players - ICICI, HDFC, HDFCB.
• Near term - choppy, with the inverted curve the major overhang, and
signs of growth slowing. Longer term: 2HCY11 should be better, given
that growth should stabilize at 7.5%-7.75% - asset quality concerns are
isolated to a few sectors. PSUs may struggle for asset quality and
margins. Investment strategy: Safety first with large cap private banks
- switch to smaller cap beta stocks when the uncertainty fades (we think
downside protection is paramount in the next 3m). We think PSUs will
underperform in the next 12m, given back-ended margin pressures.
• Oil is THE imponderable. We are not factoring in Brent staying at or
above current levels (~$112/bbl) for a sustained period – there is
downside to current numbers if we are wrong. More tangible negatives
are: a) NIM pressures in 2HFY11 for banks with large floating rate
books and b) Infra asset quality, especially in the IPP space.
• EPS cuts – 5-10%. We lower our loan growth forecast for FY12 to 18%
(from 20%), and raise credit costs, primarily for PSU banks. We
marginally trim our margin forecasts to factor in higher funding costs but
we feel the current money market stresses are transient.
• Valuations revisited. We cut multiples to reflect the new uncertain
environment, with downward changes to COE and ROE assumptions.
Our target multiples are now between ~-1sd and mean, wrt history. Our
ratings stay unchanged.
• Top picks: ICICI, HDFCB, HDFC,
Top beta idea: Yes Bank,
Top value pick: PNB,
Key avoids: SBI, SKS.
Investment strategy
Given our dichotomous view on the markets (wary in the short term, positive in the
longer term), our stock strategy is also two-phased.
Short term – prefer ICICI, HDFC, HDFC Bank
Given the uncertainty around short term rates, inflation and slowing growth, we think
it’s safer to stay with the large cap private sector banks. The key reasons:
• Earnings visibility, as growth is less dependent on the system and expanding
branch networks will drive market share gains
• Margin resilience, because of better asset-liability management and large fixedrate books that will reprice in tandem with term deposits
• Superior asset quality, given that a) retail asset quality is in a sweet spot and
these banks have higher exposure and b) exposure to infrastructure is lower or
better quality
Longer term, add some beta
From a longer term perspective, we see strong upside in some of the smaller, beaten
down private sector banks, given reasonable valuations and strong growth profiles.
We see the short term outlook for these banks as weak, given the under-pressure
macro - but we expect strong performance in 2H CY11.
The pack includes Kotak, IndusInd and Yes. Our preference is for Yes Bank, given
it’s (a) 20% valuation discount (b) Lack of any significant negative except its
wholesale deposits, which should be less of an issue once short-term liquidity eases
in April. Kotak's capital markets business will be a drag for some more time, and
IndusInd's auto exposure is a sentiment-negative in a slowing environment.
We continue to be cautious on IDFC, as worries on IPP asset quality is an overhang
that's unlikely to dissipate soon. Moreover, growth is slowing (loan growth at ~27%
FY11-14, vs 50% in FY11).
PSU’s relatively worse off
We think PSU banks will relatively underperform, because
• They are asymmetrically hit by margin contraction in 2H FY12
• They are more exposed to infrastructure asset quality issues than private sector
banks, in our view
Valuations are undemanding, and we still see absolute upside in all the stocks except
SBI (where the asset quality pressures are bigger). PNB is our best pick in this
segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We maintain our cautious near-term view on India financials, and cut
PTs (primarily multiples) to reflect the new reality. We, however, see a
better 2HCY11, and see this as an (extended) window to build positions.
Stay with the large cap private players - ICICI, HDFC, HDFCB.
• Near term - choppy, with the inverted curve the major overhang, and
signs of growth slowing. Longer term: 2HCY11 should be better, given
that growth should stabilize at 7.5%-7.75% - asset quality concerns are
isolated to a few sectors. PSUs may struggle for asset quality and
margins. Investment strategy: Safety first with large cap private banks
- switch to smaller cap beta stocks when the uncertainty fades (we think
downside protection is paramount in the next 3m). We think PSUs will
underperform in the next 12m, given back-ended margin pressures.
• Oil is THE imponderable. We are not factoring in Brent staying at or
above current levels (~$112/bbl) for a sustained period – there is
downside to current numbers if we are wrong. More tangible negatives
are: a) NIM pressures in 2HFY11 for banks with large floating rate
books and b) Infra asset quality, especially in the IPP space.
• EPS cuts – 5-10%. We lower our loan growth forecast for FY12 to 18%
(from 20%), and raise credit costs, primarily for PSU banks. We
marginally trim our margin forecasts to factor in higher funding costs but
we feel the current money market stresses are transient.
• Valuations revisited. We cut multiples to reflect the new uncertain
environment, with downward changes to COE and ROE assumptions.
Our target multiples are now between ~-1sd and mean, wrt history. Our
ratings stay unchanged.
• Top picks: ICICI, HDFCB, HDFC,
Top beta idea: Yes Bank,
Top value pick: PNB,
Key avoids: SBI, SKS.
Investment strategy
Given our dichotomous view on the markets (wary in the short term, positive in the
longer term), our stock strategy is also two-phased.
Short term – prefer ICICI, HDFC, HDFC Bank
Given the uncertainty around short term rates, inflation and slowing growth, we think
it’s safer to stay with the large cap private sector banks. The key reasons:
• Earnings visibility, as growth is less dependent on the system and expanding
branch networks will drive market share gains
• Margin resilience, because of better asset-liability management and large fixedrate books that will reprice in tandem with term deposits
• Superior asset quality, given that a) retail asset quality is in a sweet spot and
these banks have higher exposure and b) exposure to infrastructure is lower or
better quality
Longer term, add some beta
From a longer term perspective, we see strong upside in some of the smaller, beaten
down private sector banks, given reasonable valuations and strong growth profiles.
We see the short term outlook for these banks as weak, given the under-pressure
macro - but we expect strong performance in 2H CY11.
The pack includes Kotak, IndusInd and Yes. Our preference is for Yes Bank, given
it’s (a) 20% valuation discount (b) Lack of any significant negative except its
wholesale deposits, which should be less of an issue once short-term liquidity eases
in April. Kotak's capital markets business will be a drag for some more time, and
IndusInd's auto exposure is a sentiment-negative in a slowing environment.
We continue to be cautious on IDFC, as worries on IPP asset quality is an overhang
that's unlikely to dissipate soon. Moreover, growth is slowing (loan growth at ~27%
FY11-14, vs 50% in FY11).
PSU’s relatively worse off
We think PSU banks will relatively underperform, because
• They are asymmetrically hit by margin contraction in 2H FY12
• They are more exposed to infrastructure asset quality issues than private sector
banks, in our view
Valuations are undemanding, and we still see absolute upside in all the stocks except
SBI (where the asset quality pressures are bigger). PNB is our best pick in this
segment.
No comments:
Post a Comment