SBI in PSB space, ICICI Bank, Axis Bank and HDFC Bank in Private Banking segment are Nomura recommendations today. Nomura remains positive on Financials as they think the asset quality impact of COVID-19 may not meaningfully spill over beyond the first half of CY21F and investors will gain confidence on the asset quality cycle. Nomura sees a good chance for credit cost undershooting for FY22F; hence, they think the earnings upgrade cycle will continue.
Nomura remains positive on front-line private banks (ICICI Bank, Axis Bank, HDFC Bank). These top private Banks remain Nomura’s top picks within Private Banking Space.
Key stock calls:
Nomura expects the earnings upgrade cycle to continue for private banks, with:
(1) the possibility of credit cost undershooting
(2) Continued market share gains and normalizing business momentum supporting growth.
Nomura sees further scope for re-rating ICICI Bank, Axis Bank as ROE normalizes, and HDFC Bank remains a major compounder.
Nomura likes SBI (State Bank of India) at current levels, as they see good value in this public sector bank.
Private Banks – re-rating to continue:
Nomura thinks that the earnings upgrade cycle will continue with a higher probability of credit cost undershooting. Private Banks are best positioned to continue gaining market share with their strong capital positions. With corporate asset quality cycle behind and COVID-19 impact fairly contained, front line banks will see faster than expected ROE recovery. Utilization of excess liquidity and sustainable opex rationalization will further support PPOP momentum.
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Nomura continues to prefer frontline banks (ICICI Bank/ Axis Bank / HDFC Bank) with:
(1) gaining confidence on contained impact of COVID-19
(2) improving business momentum across verticals
(3) better visibility of ROE normalization, Nomura now assigns 10-20% higher multiples across front-line banks and roll forward to FY23F, driving our 15-20% increase in target prices