SBI, BOB, Axis Bank: Adani group exposure, macro concerns hit bank stocks. Is it a good entry point?

Macro concerns and the Adani saga has weighed on bank stocks, even as their fundamentals remain intact, providing an entry point in the recent correction, brokerage Emkay Global said in its latest note. The broking firm expects March results to be equally strong for banks, particularly corporate banks benefiting from the reviving growth as well as improving asset-quality resolutions.

It remains positive on the sector outlook and favours ICICI Bank, Axis Bank, Bank of Baroda, SBI, Federal Bank, Karur Vysya Bank and Indian Bank. It said HDFC Bank offers a good defensive bet, but remained concerned about Kotak Mahindra Bank’s top management change in the ensuing year.

“We also like IndusInd Bank, but believe that clarity on the current MD & CEO’s term will be critical for the stock. RBL and Bandhan Bank, too, are expected to report a better Q4 vs Q3, and could see interest from investors,” Emkay Global said.

The BSE Bankex has fallen 7.2 per cent so far this calendar against a 3.6 per cent drop in the BSE Sensex. Bank of Baroda (down 14.5 per cent), SBI (down 14 per cent), Indian Bank (down 13 per cent), Axis Bank (down 10 per cent), Kaur Vyvsa Bank (down 7.8 per cent) and ICICI Bank (down 5.4 per cent) are some of the lenders that have fallen quite a bit this calendar.

As far as the Adani group’s exposure is concerned, Emkay Global said its discussion with bankers suggests that the risk of default remains remote and low.

“Post the strong outperformance, the banking sector has seen correction in the past few months due to increasing macro/policy concerns and the recent Adani saga. Notwithstanding the macro dislocations, Emkay Global believes the banks are likely to witness healthy credit/earnings growth, with enough capital and provision buffers in place,” it said.

Emkay said asset quality for the banking sector has been on the mend, with gross non-performing asset ratio down by 59 bps to 2.3 per cent for private banks and 53 bps to 5.2 per cent for PSBs.

It noted that banking system’s credit growth has moderated slightly, but remains robust at 16.1 per cent YoY for the fortnight ended February 10, led by broad-based retail growth and supported by the corporate book as well.

“Deposit growth has picked up from the lows of 8 per cent in Nov-22; it however continues to be a laggard, at 10.2 per cent YoY. With the onset of the busy credit season, ensuing advance-tax payouts and past liquidity largely being consumed by banks, we expect the war for deposits to intensify,” it said.

The RBI in the February MPC meeting expectedly raised the repo rate by 25 bps. A higher inflation print in January CPI poses risk of another hike if inflationary expectations do not ease. With the threat of El Nino on the rise, food inflation could be a spoil-sport. Banks have increased lending rates in response to the recent repo-rate hike, Emkay noted.

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