Nifty Bank, the 12-share index most popular after Nifty rose by a whopping 5.5 per cent on Monday surpassing the broader Nifty’s 2.9 per cent. Private bank Axis was the biggest gainer, coming on the back of a successful raising of Rs 12,500 crore through a qualified institutional placement (QIP) launched last Friday.
Kotak, IndusInd and ICICI Bank were the next top gainers. Among the PSU stocks, State Bank was the major gainer at close to 4 per cent, while Bank of Baroda ended in the red.
Investors expect the government moves to perk up the economy would lead to an increase in credit growth which has been a concern in the months of slow growth in retail as well as corporate loans. The reduction in corporate tax can result in 10 to 12 per cent growth in earnings for banks though the current year gains can be limited due to the impact of deferred tax assets, Credit Suisse said.
“Near term impact of stimulus may not be adequate to alleviate the stress on troubled financial entities. We continue to prefer better-capitalised banks to capture the pick up in growth,” Credit Suisse said.
The focus here is on the banks that are well capitalised, with not much worry about stressed assets, and also select finance companies that have a stronger standing among the host of NBFCs and HFCs that have been in trouble since last September.
“Corporate, as well as retail banks where a slowdown was being built-up, got a renewed positive outlook. From the perspective of banks and NBFCs, a reduction in tax rates will have two positives – higher profitability and, thereby, return ratios for profitable lenders with Capex to revive growth cycle back into action. Improvement in corporate earnings and increased manufacturing Capex is expected to further add to banking sector’s business potential,” ICICI Securities said. It revised its rating on Bajaj Finance and HDFC Bank from ‘Hold’ to ‘Buy’, and Axis and SBI remain its top buys.
“Overall, we retain our positive view on private corporate banks with ICICI / Axis (both Buy rated) as our top picks in the sector (~37- 28% potential upside). Relatively, we do not expect the tax rate change to have any impact on the earnings for insurance companies,” Nomura said.
While the stimulus maybe not immediately helpful to financial entities, banks saddled with bad debts, the better-placed ones have become the toast of investors.