India’s banking sector is entering a more constructive phase, with future stock re-rating likely to be driven by improving profitability rather than balance sheet repair, ANI quoted a report by Kotak Institutional Equities.
The brokerage said the investment case for banks remains intact despite recent boardroom and management changes at HDFC Bank, Axis Bank and Bandhan Bank, stressing that these developments do not alter the sector’s underlying fundamentals, which it believes has entered a more favourable phase.
“We are in a more constructive phase of the cycle, where re-rating is increasingly likely to be driven by improving profitability rather than balance sheet repair,” the report said.
Next leg of sector performance
The report expects public sector banks to benefit from stronger pricing discipline, while private lenders could gain from access to cheaper funding sources.
“We expect stronger yield discipline from public banks and support from access to lower-cost funding sources, including FCNR deposits for private banks, leading the investment argument,” it said.
On the asset quality front, the brokerage remained optimistic, noting that risks continue to be contained across key lending segments, as per ANI.
“Asset quality risks remain well contained, supported by healthy retail vintages, resilient corporate balance sheets and a benign MSME credit environment,” the report said.
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
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