Top Banking Stocks January 2021

Top Banking Stocks January 2021

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India ki Banking regulatory authority RBI ne, apne Financial Stability Report (FSR) me ye predict kiya hai ki indian banks ki financial stability kaafi difficult ho sakti hai kuch mahino me. Iske piche main reason bataya gaya hai gross NPA yaani Non Performing Assets ka badhna. RBI ka prediction ye hai ki agar current market scenario aise hi chalta raha aur banks ka financial situation change nahi hua to gross NPA 13.5% touch kar saktahai. Aur agar aur bhi stressful situation hua to  Gross NPA 14.8% bhi ho sakta hai. Ye number filhaal 7.5% hai. Yaani iske double hone ke chances hai. Aaj ke video me main bataunga ke kaunse banking stocks aapke portfolio ke liye kaisa return de sakte hain in future. To video ko end tak dekhiye, channel ko subscribe kijiye.

What to buy

The big question facing investors is what should they buy? Experts favour private-sector lenders as well as players who are retail-focused. Most old private sector banks look attractive on a valuation basis as they trade at or below 1x on FY22E Book Value as compared to their ten averages of ~1.3-1.4x. However, earnings of these old private sector banks could be very volatile due to recognition of higher NPAs in the forthcoming quarters. In terms of growth, we expect old private sector banks to report healthy 25-30 percent earnings growth in FY22E. The RoEs of old private sector banks would lag behind the larger private sector banks in FY22 but improve substantially in FY23E.

Even after the run-up in most banking stocks, they were seeing more than 20 percent upside in two old private sector banks—DCB Bank and Karur Vysya Bank. Private banks should be accumulated on every dip. The bigger gets even bigger and be with the winners.

Invest in brands like HDFC, Kotak, ICICI where leaders were always leaders and will be the leaders even after 10 years. Motilal Oswal is of the view that slippages are likely to increase over 2HFY21, particularly after the Supreme Court order gets lifted, many banks have already provided for this and carry an additional provisions buffer, which should limit the impact on profitability, even as credit cost remains elevated. Their top buys remain ICICI Bank, HDFC Bank, SBI, and AU Small Finance Bank.

Opportunities amid potential risks

The Nifty Bank has rallied 69 percent, so far, in FY21 and nine stocks, including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, RBL Bank, and IndusInd Bank, rallied 50-100 percent during the period. However, on a year-to-date basis, the Nifty Bank closed lower by about 3 percent. The underperformer of 2020 could well turn out to be the outperformer of 2021, said experts. To be on the safe side, investors could increase their weightage in the private sector banks and reduce in the public sector holding or MSMEs.

 The risk, if any, to the financial sector is potential NPAs that can prop up from loans under moratorium. The risk of bad loans could be more from the MSME and retail side than the corporate side this time around. As per the RBI’s report, the stress for NBFCs could move up 50-200 bps as compared to 600-750 bps for banks. From Dalal street perspective, most investors prefer to invest in private sector banks and NBFCs as compared to PSU banks. In the case of private sector banks, the larger ones have been aggressive in providing for NPAs in advance, which can be seen from the rise in provision coverage ratios of the last two quarters,” he said. Data suggests that few of the large banks have raised big capital and strengthened their balance sheets. Large private sector banks would be in a better position to handle any slippages and higher NPAs, experts said. The banking sector is expected to trade in the range in the first half of 2021. Stock-picking is the idea which I am looking forward too. Banks with a focus on retail loans can outperform the sector and most importantly, avoid PSU banks even if you find them cheap on the valuation front.

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