Banking stocks trade volatile; Nomura says banks in a sweet spot

Most banking stocks traded volatile in morning trade on Friday (June 23) keeping their sectoral index Nifty Bank shaky. The Nifty Bank index was down 0.15 per cent lower at 43,661.25 with shares of State Bank of India, Federal Bank and IDFC First Bank as the top losers.

The index opened at 43,641.60 against the previous close of 43,724.85 and fell about half a per cent

The Nifty Bank index has been in the red for the month of June so far. If the index ends in the red, it will have snapped the gains of the last three consecutive months.

However, brokerage firms and analysts are positive about banking stocks.

Global brokerage firm Nomura in a report on June 21 said Indian banks are in a sweet spot.

“They are well-capitalized, the credit cycle is benign and profitability is at its highest level in a decade. We believe they are at the cusp of a multi-year credit cycle, notwithstanding any near-term demand disruptions arising from an uncertain macro. Cyclically, net interest margin (NIM) run rates may be near the peak, but we expect moderation ahead to be very gradual. Sector valuations are attractive, and we expect a strong 17 per cent return on equities (RoEs) across the sector over FY23-25F,” Nomura said.

“The investment thesis for Indian banks is as solid as ever, in our view. NPLs are near decade lows, with bank capitalisation levels and provision coverage at or near all-time highs. Sector return on assets (RoAs) are also at their best levels in a decade, which we believe is sustainable over FY24-25F,” said Nomura.

The global brokerage firm said that the sector P/B valuations are still slightly below their 10-year averages. The sector also offers a secular market share gain story, from PSU banks to private, which continues to play out.

“While the demand outlook in an uncertain global macro backdrop is a key near-term concern, we believe the sector is ripe for picking from a medium to long-term perspective. We expect banks to deliver nearly 17 per cent RoEs over FY24-25F, with about 18 per cent loan CAGR for private banks. Our top picks in the space are ICICI Bank, Axis Bank and IndusInd Bank,” said Nomura.

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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 23 Jun 2023, 10:26 AM IST

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