Results play! Earnings growth to moderate for banks in Q1. Which stocks to buy?

Indian banks are forecasted to experience softer growth in the June quarter, with 14-16% earnings growth YoY. Motilal Oswal predicts NII growth for HDFC Bank by 28%, ICICI Bank by 7%, and Kotak by 15%. Axis Securities sees public sector lenders growing 11% YoY. Asset quality remains steady.

After a stable , Indian banks are expected to see softer growth in a seasonally weak June quarter. Analysts expect lenders to report growth of anywhere between 14-16% year-on-year on the back of high double-digit credit growth and continued low credit costs.

In terms of margins, banks are expected to see mixed trends on account of strong growth in high-cost term deposits.

For private banks, estimates a profit after tax (PAT) growth of nearly 9% year-on-year (YoY), while the same may decline around 2% quarter-on-quarter (QoQ).

Within the private banking space, analysts are building in 28% growth in net interest income (NII) for , while ICICI and Kotak may see the same rising about 7% and 15% YoY, respectively.

Axis Securities is expecting HDFC Bank to report a profit growth of 32% YoY. On the other hand, ’s PAT growth is seen at 7% YoY. For Kotak, the business growth momentum is expected to remain healthy as the lender is likely to post a profit of 5% YoY.

Meanwhile, the public sector lenders are likely to report moderate earnings growth of 11% YoY in the first quarter. Within this, Motilal Oswal estimates to record NII growth around 9% YoY, while profit may decline marginally by 0.2%.

Credit and deposit growth
The first quarter is usually seen as weak for loans and deposits growth. However, Nuvama said the feedback on loan growth is stronger than normal.

“We expect banks to register strong credit growth of 18% YoY (ex-HDFC Bank). Deposit growth continues to lag credit growth, with systemic deposit growth at 13% YoY,” said Axis Securities.

Asset quality
There is near consensus among analysts that most banks will report largely steady asset quality metrics despite slippages seeing a slight seasonal bump-up.

The commentary around stress in the microfinance segment would be keenly eyed, especially for small finance banks and banks with a prominent presence in the segment.

“On the asset quality font, while asset quality continues to remain pristine and at decadal lows, we expect credit cost to start normalizing upwards gradually towards long term average,” said Nirmal Bang.

Net interest margins
The increased competition among the lenders for deposit mobilization has resulted in banks offering competitive rates for term deposits.

“With continued deposit repricing weighing on CoF coupled with limited loan re-pricing opportunities, we expect banks to continue reporting margin compression in Q1FY25,” said Axis Securities.

Which stocks to buy?
Analysts are betting on ICICI Bank, SBI and to report healthy earnings among the banking pack, which they hope will lead to positive results plays.

Motilal Oswal has a buy rating on ICICI Bank, Federal Bank, HDFC Bank and SBI, ahead of the fourth quarter results, in anticipation of strong earnings growth. Meanwhile, Axis Securities and Nuvama too are bullish on ICICI Bank, Federal Bank and SBI in the run-up to the first quarter results.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Source: Stocks-Markets-Economic Times