Star fund manager Saurabh Mukherjea said “when the economic cycle begins and the money market is flush with liquidity, the gap in funding cost between strong banks and weak banks isn’t as high as it should be.”
In such a scenario, he said, the men and the boys separate and it becomes easier to discern who is the real ‘baahubali’.
Sensex and Nifty50 are down around 9 per cent YTD but have still gained around 8-9 per cent in the last year. Nifty Bank, on the other hand, has lost around 3.4 per cent YTD and one per cent in the year, with top banking counters like falling over 12 per cent, down 9 per cent and down 6 per cent on a YTD basis.
Siddhartha Khemka, Head – retail Research,
Financial Services, estimates loan growth to sustain at 13 per cent CAGR over FY22-24 compared to 8 per cent CAGR over FY18-21. Since FY18, gross non-performing assets (GNPAs) have witnessed a gradual moderation, supported by healthy recoveries via the IBC and an improvement in the corporate non-performing loan (NPL) cycle.
“After reporting dismal earnings over FY16-20, earnings for the banking sector gathered pace as private and PSU banks reported 29 per cent and 134 per cent earnings compound annual growth rate (CAGR) over FY20- 22E. The capitalisation levels for the banking system remain robust and this will enable sustained growth recovery over FY22-24E,” the brokerage said in a note.
The brokerage believes that a similar recovery is playing out over FY18-24E, though the time taken is slightly longer due to the pandemic and slower loan growth.
The sector is in its best health in the past 50 years, with respect to asset quality and capital adequacy, said Khemka of Motilal Oswal.
Dipan Mehta of Elixir Equities believes largecap banks are available at attractive valuations. “We are seeing secular growth momentum and the larger banks for the next quarter or so and valuations are reasonable,” he said.
Yash Gupta- Equity Research Analyst, Angel One, suggests retail investors to wait for some time and let the dust settle down in the market. Long-term investors may look to add some positions in bank stocks, he added.
Khemka said fresh slippages have moderated over the past few years, aided by a meaningful decline in corporate slippages across banks after a prolonged stressed NPL cycle.
“We expect the GNPA ratio for our coverage universe to moderate to 4.2 per cent by FY24 and the NNPA ratio to touch a decade low of 1.3 per cent by FY24. We estimate slippages to decline to 1.8 per cent by FY24, led by robust trends in corporate and retail segments and a sharp decline in the SMA book,” the Motilal Oswal note added.