The 25% rally in last two months in India bank Index has been driven by a combination of macro improvements and some hope being built in of a favourable political outcome. On the Macro front, while movement on CAD/ Headline inflation/ currency has been positive, some other metrics like core inflation/industrial growth/order flow seem to be bottoming out but a material improvement is contingent on political outcome.
''We believe even the RBI is also waiting for a pro-reform Govt. to provide a decisive turn to monetary policy. As some of this hope seems to be built in, near term risk-reward on a broad basis is less attractive in our view and hence below we highlight select pockets of value on a relative basis,'' said Prabhudas Lilladher (PL).
''Also, FY15 is likely to be a challenging year from a profitability perspective. For private banks we expect PPOP growth moderating from +20% to <15% and PAT growth from 17% to 13% as margins will remain flat at best and core fee growth will continue to remain benign and credit costs will be flat assuming some improvement. For PSUs, further NIM deterioration looks unlikely and Q4FY14 CDR referrals indicate an improving trend. FY15E credit costs are unlikely to change much though incremental stress formation could be lower especially with a favourable political outcome,'' the broking firm said.
''PPOP growth to moderate for private banks as NIM base impact gets less favorable and fee growth is unlikely to revive - Expect weak PPOP growth for Axis/Yes bank. No negative asset quality surprise except for higher restructuring for ICICI (factored in); PSUs - PPOP contraction to moderate as further NIM moderation unlikely Bank of Baroda/Punjab National Bank/Union bank of India guidance on asset quality is sanguine whereas SBI/BOI have guided weak trends. Bank of India Q4 will be the weakest; Among NBFCs, LIC Housing Finance will report some NIM uptick, SHTF's margin/asset quality will plateau whereas we expect a large negative surprise from MMFS,'' it added.
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