Banks could shine in Q4 earnings season

Tata Group firm TCS began the March quarter results season for Nifty50 companies yesterday. On an aggregate basis, brokerages expect the combined net profit of the companies in the 50-pack index to grow by 29% on a year-on-year basis to an all-time high of Rs 1.61 trillion, from around Rs 1.25 trillion a year ago.
The combined net sales of the index companies, meanwhile, is expected to grow by 32 per cent YoY to Rs 14.18 trillion in Q4FY22 from Rs 10.76 trillion a year ago.

A large part of this growth, analysts say, would be driven by the banking, finance and insurance -- or BFSI -- companies.
Banks, in particular, are expected to put up an impressive Q4 show with systemic loan growth seen in double digits and asset quality staying stable.
 
Deepak Jasani of HDFC Securities, too, says that investors need not worry about the banking sector’s earnings this time.

Analysts peg net interest income, pre-provision operating profit, and net profit growth for the entire sector at 19%, 6%, and 93% year-on-year.
Industry credit loans, meanwhile, may swell nearly 13% year-on-year driven by growth across segments, particularly in unsecured retail, SME and housing finance segments.

If one were to analyse the sector in terms of private and public banks, analysts at Kotak Institutional Equities expect the private players under their coverage to report about 21% year-on-year and 6 per cent sequential growth in net interest income.
Improvement in profit after tax, meanwhile, is seen at 86% year-on-year and 6% quarter on quarter led by Bandhan Bank (up 978% year-on-year), RBL Bank (226% year-on-year), ICICI Bank (64 per cent year-on-year), and Axis Bank (51% year-on-year).

Public sector banks, on the other hand, are likely to experience continued traction in their operating performances, supported by recovery in business growth, and a sustained reduction in provisions.

Slippages could continue to subside, which along with healthy recoveries, would reinforce the asset quality performance.
Overall, PSBs are likely to deliver net interest income growth of around 20 per cent. PAT growth is seen at 100% year-on-year and 19 per cent quarter on quarter led by Canara Bank (up 100% year-on-year), Punjab National Bank (up 98% year-on-year), and State Bank of India (up 66%).

That said, while analysts believe forward flow into the delinquency bucket would likely be restricted in Q4FY22, analysts expect behaviour of ECLGS lending pool and restructured portfolio would be key to watch.
 
In nutshell, Q4FY22 will likely be characterised by stability and normalisation after several quarters of volatility. NIMs, slippages and credit cost are likely to remain stable. Recoveries and upgrades may also outpace fresh slippages and gross NPAs could decline.
 
On Tuesday, markets will react to TCS’ Q4 results, which were announced after market hours on Monday. That apart, Anand Rathi Wealth and GM Breweries will be among the six companies set to announce their March quarter results today.
Among macro triggers, the domestic Index of Industrial Production (IIP), along with Consumer Price Index (CPI) reading for both India and the US will be released later today.