Risk-averse investors have been noticed shying away from India’s banking sector earlier this year when the coronavirus aided lockdown had just been imposed. With firms unable to operate, unless critical, it was anticipated that non-performing assets of currently stressed lenders would develop. However, as we close to the finish of 2020, and gear up to enter 2021, the story is very distinct. Global brokerage and study firm Morgan Stanley now believes that massive Indian private banks are now getting into ‘a golden age’.
A Multitude of components are now working in favour of the massive private banks in India. “Large private banks have emerged stronger out of the COVID crisis – they have strengthened capital, built excess provisions and have improved liquidity positions,” the report mentioned. India’s macroeconomic outlook has turned more good given that the finish of the earlier quarter and is only anticipated to strengthen going forward. High frequency indicators are charting a V-shaped recovery with development anticipated to turn good this quarter.
Lenders have raised capital in 2020 aggressively as they geared up to battle the pandemic. “We believe the current stock of provisions at large private banks are enough, and will help them normalize credit costs in H1-F22,” analysts at Morgan Stanley mentioned.
India’s biggest private sector lender HDFC Bank has a target price tag of Rs 1,700 with an ‘Overweight’ rating. In the bull case situation the target price tag may possibly go as higher as Rs 2,135 per share. HDFC Bank has a sturdy funding franchise and has continued to obtain market place share. “Despite slowdown related to the Covid-19 outbreak, loan growth has continued to outperform given strong branch expansion/digital capabilities and market share gains. Asset quality is robust given strong underwriting capability and lending to prime borrowers across segments – this has been helping the bank outperform even during the pandemic,” the report mentioned.
ICICI Bank as well has an ‘Overweight’ rating from Morgan Stanley, expecting a re-rating cycle ahead for the private sector lender. Continuing the trend amongst banks, ICICI Bank has managed to beef up capital and has accelerated its deposits market place share additional. “Despite slowdown related to the Covid-19 outbreak, loan growth has continued to outperform given strong branch expansion/digital capabilities and market share gains. Asset quality is robust given strong underwriting capability and lending to prime borrowers across segments – this has been helping the bank outperform even during the pandemic,” the report mentioned. The base case target price tag for ICICI bank is Rs 735 per share, though the bull case target is of Rs 1,055 apiece.
The third private sector bank in the list is Axis Bank. Attractive valuations and enhancing profitability have been cited as the causes behind ‘Overweight’ rating. Asset high quality of the bank is anticipated to strengthen additional along with loan development. “We believe that the bank is well placed for credit cost normalization in F22 unless the economic environment deteriorates sharply,” Morgan Stanley mentioned. Base case target price tag for Axis Bank is Rs 780 though the bull case target is Rs 1,375 per share.