Investor interest in Indian banks remains tepid, HDFC Bank less favoured, says CLSA

CLSA analysts noted that investor interest in Indian banks remains low due to weak EPS growth

In an Asia marketing meet, CLSA analysts noted that investor interest in Indian banks remains low due to weak earnings per share (EPS) growth. While sentiment toward Bajaj Finance, the largest NBFC player, has improved, India’s leading private lender, HDFC Bank, continues to be a less favored option among market participants.

"Many investors remain unexcited about HDFC Bank after the slow start to the year on deposit accretion," CLSA analysts observed. However, IndusInd Bank garnered some interest due to its underperformance and sensitivity to rate cuts.

Given the weak EPS growth in the banking sector, CLSA highlighted that investors are favoring stocks with clearer growth prospects. They expect more favorable conditions from Q4FY25/Q1FY26, with most clients preferring to hold off until then.

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At a time when most of the banking and lending institutions were complaining about credit growth outpacing deposit accretion, raising concerns over liquidity crunch, recent report by the RBI underlined that there is some cool off in credit offtake.

According to the RBI report, the gap between non-food credit growth and deposit growth narrowed from 311 basis points on July 26 to 275 basis points on August 23. As of August 23, credit growth was at 13.6 percent year-on-year, while deposits increased by 10.8 percent over the same period.

This moderation was attributed to RBI measures such as requiring banks to maintain higher liquid assets to handle potential surges in retail deposit withdrawals and imposing higher risk weights on certain loan segments.

So far this year, Bank Nifty index surged 8 percent, underperforming benchmark Nifty 50's 15 percent rise.

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