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India Banks
4Q11 Preview: Robust Growth, Aided by a Low Base Effect
33% Profit Growth - healthy credit expansion, base effect — We believe 4Q11
should be another healthy quarter (estimate profits to rise 33% yoy), driven by: a)
Continued healthy credit growth (23% yoy); b) Low base effect in 4Q10 (especially
for PSU banks on high credit costs); and c) Some moderation in NIMs (but still high
and up yoy). Overall, the impact of tougher macro conditions (rates, liquidity and
inflation) should largely be offset by high credit growth and stable asset quality.
Key Trends to Watch — a) NIMs: We expect higher funding costs to start hurting
NIMs (down 10bps qoq, lesser for stronger deposit franchises); b) Asset quality:
Private banks should show some improvement, PSU banks to remain vulnerable as
higher credit costs are likely to recur; and c) Bond portfolio gains: rates were volatile
but settled higher towards end of the quarter – expect gains to be low, but surprises
possible. Bottom-up, operating fundamentals, earnings and balance-sheets should
still look healthy; there is pressure top-down, but impact likely modest so far.
Key Stocks to Focus On — PSU banks’ should outpace private banks on earnings
growth (40% vs 23%) due to lower base effect in 4Q10 (but private banks likely to
show better fee incomes, loan growth and asset quality). Key stocks likely to be in
focus – a) Axis – NIMs could be impacted more due to relatively higher wholesale
funding, would be negative if so happens; b) ICICI Bank – growth and margin mix
will be keenly watched, positive if growth reaches closer to industry levels; c) SBI –
consensus likely more bearish on NIMs, asset quality, management transition
concerns; and d) Yes Bank – NIM pressures could impact stock negatively.
Sector View: Run-up recently; Look to add on weakness — The sector has
outperformed recently (+6% vs Sensex in last 3 months) as concerns on the macro
environment (rates, liquidity, inflation) have taken a back seat; but we believe
valuations could limit near-term upside. We remain positive on the sector medium
term, and will look to add on any corrections. We prefer private sector banks and
strong deposit franchises. Our top picks remain SBI, Axis and IDFC.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks
4Q11 Preview: Robust Growth, Aided by a Low Base Effect
33% Profit Growth - healthy credit expansion, base effect — We believe 4Q11
should be another healthy quarter (estimate profits to rise 33% yoy), driven by: a)
Continued healthy credit growth (23% yoy); b) Low base effect in 4Q10 (especially
for PSU banks on high credit costs); and c) Some moderation in NIMs (but still high
and up yoy). Overall, the impact of tougher macro conditions (rates, liquidity and
inflation) should largely be offset by high credit growth and stable asset quality.
Key Trends to Watch — a) NIMs: We expect higher funding costs to start hurting
NIMs (down 10bps qoq, lesser for stronger deposit franchises); b) Asset quality:
Private banks should show some improvement, PSU banks to remain vulnerable as
higher credit costs are likely to recur; and c) Bond portfolio gains: rates were volatile
but settled higher towards end of the quarter – expect gains to be low, but surprises
possible. Bottom-up, operating fundamentals, earnings and balance-sheets should
still look healthy; there is pressure top-down, but impact likely modest so far.
Key Stocks to Focus On — PSU banks’ should outpace private banks on earnings
growth (40% vs 23%) due to lower base effect in 4Q10 (but private banks likely to
show better fee incomes, loan growth and asset quality). Key stocks likely to be in
focus – a) Axis – NIMs could be impacted more due to relatively higher wholesale
funding, would be negative if so happens; b) ICICI Bank – growth and margin mix
will be keenly watched, positive if growth reaches closer to industry levels; c) SBI –
consensus likely more bearish on NIMs, asset quality, management transition
concerns; and d) Yes Bank – NIM pressures could impact stock negatively.
Sector View: Run-up recently; Look to add on weakness — The sector has
outperformed recently (+6% vs Sensex in last 3 months) as concerns on the macro
environment (rates, liquidity, inflation) have taken a back seat; but we believe
valuations could limit near-term upside. We remain positive on the sector medium
term, and will look to add on any corrections. We prefer private sector banks and
strong deposit franchises. Our top picks remain SBI, Axis and IDFC.
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