Tide is turning as GOI gets in action mode: Flurry of reforms announced, promise of more to come
Macro bottoming out: GDP set to recover – 6.5% in FY14 (with upside risk to 7%), fiscal slippages to be capped at ~5.5% by FY13E
Interest rates – only direction is down: RBI response to match GOI steps on fiscal management
Time to load up on SOE banks
· Clear play on improving macros: Expect asset quality risk to come off by end of FY13
· No revision in FY13 estimate - But upside risk to FY14 estimates – on account of lower provisions, credit growth
· Change in ratings: We upgrade SBIN, BOB, UNBK to ‘BUY’ and turn “Neutral’ on PNB and ALBK from our negative stance earlier.
· Direction clear, but road can be bumpy : Wage hike provisions, restructuring provisions, Basel III, dynamic provisions, asset quality lag and weak quarterly earnings
Is the Euphoria already in the price ? We don’t think so.
· Last 1 month – SOE Banks have outperformed , still 10% underperformance for the year vis-à-vis Bankex
· Moved up from bust valuation – but still below long term averages
· As confidence returns, street to move from conservative adjustment of book value to absolute book value
Top picks in space
· Corporate focused private banks: Axis Bank, ICICI Bank, Yes Bank as perception around corporate book improves
· SOE Banks: SBIN, UNBK and OBC
· Small private sector banks: Federal Bank
· NBFC: MMFS and LIC Housing
Regards,
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