SBI, BOB, HDFC, ICICI Bank shares: Investors in Singapore, Hong Kong find PSB stocks interesting, say this on private lenders

Among the key takeaway from the trip was that there was a heightened interest among institutional investors in State Bank of India (SBI) and other PSU banks and that those investors largely felt the HDFC Bank stock has made a bottom, making peace with lower medium-term loan growth. For private banks as a pack, they see challenging road ahead amid tight liquidity. Net-net, they had a preference for value.

“We found increased interest for owning PSU Banks among long-only funds, led by increased confidence on RoE delivery, as the asset quality outlook for the sector remains benign. Investors largely also agreed that PSUs are better positioned amid the current tight liquidity scenario, owing to their lower LDRs,” Nomura India said.

SBI, Bank of Baroda

Concerns on PSU banks were largely centred around: equity supply overhang from a potential capital raise by SBI (CET1 currently at

10.4 per cent) and any increase in credit cost outlook led by potential implementation of expected credit loss (ECL) norms by the RBI. Besides, there were concerns over deterioration of return on asset (RoA) profiles led by a waning of recoveries from written-off accounts (especially for PSUs barring SBIN and BOB).

“Overall, we found investors were much more open to investing in PSU names, which we find reassuring for SBI and BOB,” Nomura India said.

HDFC Bank

Institutional investors, Nomura India said, largely believe that the worst may be behind for HDFC Bank share price. Most investors are also comfortable with a potential low-teens loan growth outlook over the near-to-medium term, as the bank gradually brings down its loan-to-deposit ratio (LDR at 110 per cent as of 3QFY24), they said.

“Investors’ argument here is focused around RoA, which should be on a gradual improvement trajectory as the funding mix gradually improves. While we do concur that HDFC Bank stock may have bottomed (we have a Neutral rating with a target price of Rs 1,625), it is still not a preferred pick for us in the sector, as we do not see a strong case for meaningful upside amid loan growth moderation, which we think should persist over the medium term,” Nomura India said.

ICICI, Axis, Kotak, IndusInd Bank

While most investors do view the current tight liquidity environment as transitory, the worry here is that as long as it persists, one could see loan growth trajectories moderate for most private sector banks.

Investors largely concur that ICICI Bank (Buy) and Kotak Mahindra Bank (Neutral) are better positioned over the near-term (owing to lower LDRs and better delivery on deposit mobilisation). ICICI Bank is largely a consensus favourite, while we did find somewhat increased interest for Kotak Bank considering its significant underperformance over the past three years. Investors largely believe Axis Bank (Buy) could face challenges in terms of loan growth owing to its higher LDR (93 per cent as of 3QFY24) and lower deposit mobilisation run-rate vs peers,” Nomura India said.

Meanwhile, feedback on IndusInd Bank was a mixed bag, with some investors willing to ride out near-term pressures on loan growth, as it offers a better play amid potential rate cuts ahead.

“One of the key queries we received from investors was around the significant ‘regulatory tightening’ carried out by the RBI, with directed actions on specific entities (especially NBFCs and fintechs). Some investors were even of the view that this ‘tightening’ is linked to the impending general elections (Apr-May’24), after which we could see policy easing. Our view here remains that this ‘regulatory tightening’ is aligned with the regulator’s policy tightening (i.e., on rates and liquidity), and is aimed at bringing down any over-exuberant loan growth for the sector,” it said.