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Indian Banking Sector Update

In: Business and Management

Submitted By sameerah
Words 5522
Pages 23
ICICI Securities Limited
Industry Report
December 14, 2010
Price movement
14000 11000 8000 5000 Aug-10 Oct-10 Dec-09 Mar-10 May-10 Dec-10 Feb-10 Jul-10 8000 6000 4000 2000

Banking Industry Update Dec ‘10
Taking a breather, negatives surround…
Banking stocks corrected across the board on the PSU banks ‘bribery for loans’ scam, 2G and MFI loans, liquidity concerns and rising G-Sec yields. However, one has to take a call on whether the sector will keep correcting further. We believe the sector will continue to remain under pressure in the near term where stocks may not give a sharp bounce-back but shall remain around these levels until we are able to see a sharp uptick in credit and deposits growth alongside pressure on yields easing off.
Exhibit 1: Tight liquidity, short term rates up – longer term still better off
10 9 8 (%) 7 6 5 4 3 30-Nov-09 31-May-10 31-Aug-10 31-Mar-10 30-Nov-10 30-Sep-10 31-Oct-09 31-Jan-10 31-Dec-09 30-Jun-10 28-Feb-10 30-Apr-10 31-Oct-10 31-Jul-10

Bank Nifty

Nifty (RHS)

Source: Bloomberg, Research

1 Yr Gsec


10 Yr Gsec

The recent bribery for loans scam concern, mounting pension liabilities remain an overhang on the sector. We expect a reduction in valuation multiples of PSU banks, particularly midcap PSU banks. Their range of 1.5x-2x may shift to 1.4-1.8x. We recommend investors buy large cap stocks like HDFC Bank (higher CASA and corrected), Bank of Baroda (strong asset book) and among other midcaps Oriental Bank of Commerce (cheap valuation) and Development Credit Bank (sharp correction and turning profitable) in current market conditions.
Exhibit 2: Banking stocks - Price Correction
Bank Bank of Baroda Bank of India Dena Bank IDBI Indian Overseas Bank Oriental Bank of Commerce Punjab National Bank State Bank of India Syndicate Bank Union Bank of India Axis Bank Dhanlaxmi Bank DCB...

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