Indian banks' valuations look attractive despite global turmoil: Jefferies

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26 Aug, 2025 12:21

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Financial companies in India are better placed than its global peers despite global turmoil, said Jefferies in a report on the Indian financial sector. According to the global research firm, Indian firms are better placed with higher share of retail deposit, limited asset/liability management (ALM) gap and mark to market (MTM), limited dependence on AT-1 bonds and lower exposure to riskier segments like promoter and acquisition finance.

"While equities and global bonds saw pressure off-late, local bond market is stable. Post correction, valuations of some are near or below Covid lows," it said.

AT-1 bond market has polarised towards large/ quality banks post Yes Bank

"India had a Credit Suisse like AT-1 bond issue right around Covid when Yes Bank wrote-down AT-1 bonds and still there was some franchise value assigned to equity through capital infusion by leading banks/ NBFC. Since then, the issuances have been lower and market has become polarised towards larger and quality banks. Among banks, top three issuers are State Bank of India, HDFC Bank and Canara Bank with PSU banks having higher contribution from this," Jefferies said.

Valuations in some cases below Covid lows:

Valuation of Indian banks is looking fairly attractive and in some cases stocks trade below the levels during the height of Covid risk despite the fact that global events, especially in the financial sector, have stirred confidence and increased cost of equity capital (COE).

According to Jefferies, stocks above USD 5 billion in market capitalisation that are trading below the Covid-low valuations are Kotak Mahindra Bank, ICICI Prudential Life Insurance, ICICI Lombard General Insurance and HDFC Life Insurance. ICICI Bank, IndusInd Bank and State Bank of India are top bank picks with Bajaj Finance, Cholamandalam Investment among NBFCs. Life insurers are also attractive (and below Covid lows) but clarity on taxation of insurance policies will be key to rerating.

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