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Indian Banks
1Q FY12 preview: Difficult quarter for PSU
We expect to see soft 1Q FY12 results from Indian financials, due to a
confluence of negatives from the macro and regulatory uncertainty.
Weak NIMs and higher provisions should drive weaker ROAs, especially
for PSU banks. Our preference for private banks continues, as we expect
them to recover from 2Q onwards.
Macro and regulatory headwinds: Peaking interest rates and
decelerating growth trigger multiple negatives – a) NIM pressures as
loan yields chase deposit costs, b) loan growth deceleration, which
drives c) fee weakness and d) treasury losses from bond yields, and e)
sporadic asset quality issues. Tighter regulation in 1Q – higher savings
deposit costs and provision requirements – compounds the pressure.
ROA weakness: We expect ROAs to fall by 10-30bp, driven by weaker
revenues and higher provisions. The private sector banks, however,
should recover in later quarters, as loan pricing improves and
delinquencies stay low. PSU banks should see a) continued NIM
pressure given ALM mismatches, and b) elevated delinquencies from
seasoning. Savings bank deregulation remains a short-term risk to our
view – we see no clarity on timing.
Potential winners – the usual suspects: We expect the more resilient
earnings to come from HDFC and HDFC Bank, while Yes Bank and
IndusInd Bank should post strong headline numbers. PSUs will continue
to show weak numbers for a second successive quarter, by our estimates.
The strain of persistently high interest rates should affect NBFCs.
In the short term, stick to quality: Although these numbers appear to be
partially in the price (the bankex is down 7% since the late April peak), we
recommend sticking to large-cap quality names (HDFC, HDFC Bank) into
the results season. Our favourite mid-cap stock is IndusInd Bank, and we
would buy ICICI on any weakness. We would avoid IDFC, for which we
have cut our earnings estimates by 5-7% and our PT by 10%, and PSUs
banks, with Bank of India being our key stock to avoid.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Banks
1Q FY12 preview: Difficult quarter for PSU
We expect to see soft 1Q FY12 results from Indian financials, due to a
confluence of negatives from the macro and regulatory uncertainty.
Weak NIMs and higher provisions should drive weaker ROAs, especially
for PSU banks. Our preference for private banks continues, as we expect
them to recover from 2Q onwards.
Macro and regulatory headwinds: Peaking interest rates and
decelerating growth trigger multiple negatives – a) NIM pressures as
loan yields chase deposit costs, b) loan growth deceleration, which
drives c) fee weakness and d) treasury losses from bond yields, and e)
sporadic asset quality issues. Tighter regulation in 1Q – higher savings
deposit costs and provision requirements – compounds the pressure.
ROA weakness: We expect ROAs to fall by 10-30bp, driven by weaker
revenues and higher provisions. The private sector banks, however,
should recover in later quarters, as loan pricing improves and
delinquencies stay low. PSU banks should see a) continued NIM
pressure given ALM mismatches, and b) elevated delinquencies from
seasoning. Savings bank deregulation remains a short-term risk to our
view – we see no clarity on timing.
Potential winners – the usual suspects: We expect the more resilient
earnings to come from HDFC and HDFC Bank, while Yes Bank and
IndusInd Bank should post strong headline numbers. PSUs will continue
to show weak numbers for a second successive quarter, by our estimates.
The strain of persistently high interest rates should affect NBFCs.
In the short term, stick to quality: Although these numbers appear to be
partially in the price (the bankex is down 7% since the late April peak), we
recommend sticking to large-cap quality names (HDFC, HDFC Bank) into
the results season. Our favourite mid-cap stock is IndusInd Bank, and we
would buy ICICI on any weakness. We would avoid IDFC, for which we
have cut our earnings estimates by 5-7% and our PT by 10%, and PSUs
banks, with Bank of India being our key stock to avoid.
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