The banking sector had seen a sharp decline in business activity owing to lockdowns, especially in April, May 2021. However, trends from July 2021 onwards show faster return towards normalisation, especially on the asset quality front, as per ICICI Securities, as most lenders have indicated at an improvement in collections with unlocking of the economy.
With lower number of infections, increasing vaccinations and faster unlocking, the brokerage firm believes an economic revival could take place at a faster pace as pent up demand kicks in amid festive season.
As its top stock picks, ICICI Securities recommends Axis Bank, HDFC Ltd and Kotak Mahindra Bank among large lenders, CSB Bank & IDFC First Bank in the midcap domain and HDFC Life & SBI Life among non-lenders.
Among PSU banks, the legacy asset quality issues are behind and retail non-performing assets (NPAs), if any, are not expected to be lumpy keeping scope for provisions under check and earnings improvement. It remains positive on State Bank of India (SBI) among PSU banks.
The brokerage is overweight on banks/housing finance companies (HFCs) and insurance/brokerage sector whereas it is neutral on Non-Banking Financial Company (NBFCs)/asset management companies (AMC).
It believes that increasing advent of fintech players is expected to broaden the market size by targeting unserved and under-served population through digital means. Further, large incumbents (large banks and NBFCs) capable of either investing in developing technology or collaboration seem to remain resilient.
“In addition, leaders catering to niche segments are expected to continue to grab market share and business growth. However, mid and small players without any niche offering are seen remaining at risk of moderation in business growth and loss in market share,” the note by ICICI Securities stated.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!