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Banking stocks came under heavy selling pressure today with the banking index – the S&P BSE Bankex slipping over 2.5% in morning deals as compared to 1.1% fall in the benchmark S&P BSE Sensex. It was the worst-performing sectoral index in trade.
Among individual stocks, Axis Bank, HDFC Bank, IndusInd Bank, Union Bank of India and Kotak Mahindra Bank slipped over 2% each. However, the biggest loser in this pack was ICICI Bank that lost over 3.5% to Rs 897 levels. The fall comes on the back of news report in The Times of India that that the bank has raised an alarm over loan default by Dabhol pwer plant after being rendered idle due to fuel supply issues.
However, a PTI report suggests that GAIL India and NTPC are considering renting out the 1,967-Mw Dabhol unit to private electricity generators.
In a September 2013 report, Adarsh Parasrampuria and Pritesh Bumb of Prabhudas Lilladher suggest that ICICI Bank's and Axis Bank’s exposure to (power) assets is quite meaningful at ~25-35% of NW (net worth) but adjusted book indicate that valuations is factoring some pain from these exposures. “Share of high risk power book is lower for ICICI/Axis versus PSU banks and between them risk profile of ICICI’s seems better,” they say.
R Muralikrishnan, head of Institutional equities, research and strategy at Karvy maintains that the performance of banking sector is likely to remain dismal even in Q2FY14, as they expect most of the banks to report moderate growth in revenue owing to tepid average growth in loan book and declining traction in core fee income.
“We also expect NIM to be under pressure during the quarter on account of significant increase in bulk deposit rates. In the private banking space, our top picks are Axis Bank, ICICI Bank and Development Credit Bank, whereas in PSU space our top picks are Bank of India and Union Bank of India,” he adds.
Jignesh Shial, an analyst with IDBI Capital points out that apart from asset quality concerns, major issue faced by most banks is lack of growth opportunities. Consequently, most banks are likely to report slower than expected credit growth on the back of slowing domestic economy and low demand from corporate across segments.
Since most private banks are trading at premium, any negative surprise would result in sharp destruction in valuation premium for the bank. “Among the banks not rated by us, we like IndusInd Bank and ING Vysya Bank considering its stable retail growth strategy and better asset quality,” he says.
