Shares of IndusInd Bank surged over 9 percent while those of State Bank of India (SBI) climbed over 3 percent in intraday trade on BSE on August 27 after the global financial firm UBS upgraded the stocks to 'buy' from 'sell'.
"Bank stocks are down 12-62 percent year-to-date and have underperformed the broader markets. We think the sector’s downside risks are limited and upgrade IndusInd Bank and SBI from sell to buy," UBS said in a note.
UBS has a target price for IndusInd bank at Rs 675 and for SBI at Rs 260.
"We reduce FY21E GNPL formation and credit costs but raise our NIM estimates, resulting in a 17-115 percent lift in FY21E earnings for the banks we cover. Our estimates are 4-30 percent higher than consensus for select coverage banks," UBS said.
"Stocks are trading below the five-year average and we expect most of the banks to trade near their five-year average valuations. Though we think asset quality risks for IndusInd Bank and SBI remain higher than peers, we believe current valuations reflect most negatives, driving our upgrades," UBS added.
UBS is of the view that the government and RBI relief measures in terms of additional liquidity infusion, guaranteed funding for SMEs, and loan restructuring rules for all segments, in the past few months, have reduced tail risks in the banking system.
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