KRChoksey has come out with its report on banking sector. According to the research firm, ICICI Bank, Axis Bank, IndusInd Bank, State Bank of India, Union Bank of India, and HDFC are the top picks in the space.
"We expect reported earnings of our banking and financial service sector universe to grow 21.8% Y-o-Y and 11.8% Q-o-Q, driven by private sector banks' earnings (20.2% Y-o-Y & 12.8% Q-o-Q). PSU banks' earnings are likely to see a strong rebound led by margin expansion, modest fee income growth, robust trading gains and contained loan loss provisioning. Yes Bank and Indusind Bank will outperform sector aggregates earning growth during the quarter. G-Sec yields have declined 66bps from 8.51% in Q2FY15 to 7.86% in Q3FY15. Q2FY15 earnings have shown strong trading gains on 23bps bond yields fall and 4.6% upward move in equity market. We believe strong rally in equity market (up 4% Q-o-Q), steep fall in bond yield will boost banks' earnings in Q3FY15 also."
Sector outlook & View: "We believe operating business environment for banks has improved materially on the back of likely shift in monetary policy stance in favor of rate easing in CY15 (expectation 50-75bps cut). Select banks have cut lending & deposits rates reflecting beginning of rate easing cycle, pick up in credit growth, windfall gains on treasury book due to sharp 66bps decline in bond yield (7.85% from 8.51% 2QFY15) and RBI's measures to reduce asset quality pressure in infrastructure and steel sector. Recovery in growth, improvement in business sentiment, availability of equity to leveraged corporate balance sheets and better consumer spending trends will support asset quality and credit growth outlook going forward. Investor should focus on quality earning growth visibility and shape earnings recovery possibility theme within the Indian financial sector. We believe private banks continue to deliver better earnings growth over sector aggregates and improvement in return ratios. PSU banks will see strong earnings delta coming from windfall gains on treasury book, containment in operating expenses, lower credit costs and higher NII growth led by better margins and pick up in loan book growth. On the valuation front, bank Nifty has increased by 21% in last quarter leaving financial stocks closer to their fair value. Further re-rating will require earnings upgrade and meaningful asset quality trend reversal", says KRChoksey research report.
Top Picks: ICICI Bank , Axis Bank , IndusInd Bank , State Bank of India , Union Bank of India , and HDFC .
For all recommendations, click here
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To read the full report click here
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