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PhillipCapital 'banks' on 4 factors in financials; 5 stocks to bet on

The brokerage believes risk-reward being favourable for corporate banks

December 13, 2018 / 11:29 AM IST
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Betting on recovery in asset quality, better market share, margin expansion and improved profitability, PhillipCapital expects a good show from financials. It believes risk-reward is favourable for corporate banks.

It said the asset quality cycle is shifting from a decline phase to early recovery signs.

“It will last for a few years until we see more broad‐based credit growth. Non‐PCA banks will witness a pickup in credit, driven by a shift in market share from non‐banks,” analysts at the firm wrote in their report. The poor loan pool has declined, which suggests moderation in slippage, it added.

The brokerage house believes rising cost of funds and tight liquidity could aid lenders in gaining market share.

Analysts at the firm expect margin expansion for corporate banks in FY19, mainly due to recoveries of unpaid interest.


PhillipCapital also said ‘normalisation’ of earnings and better asset quality could mean a good boost to the banks’ profitability.

“High‐risk premium banks such as State Bank of India, ICICI Bank, Yes Bank, and Axis Bank should see earnings bouncing back in FY20, and perhaps a normalisation of earnings growth in FY21. Their implied earnings growth at current valuations looks very moderate against our estimate.

Here are its preferred picks:


The brokerage believes the bank is entering NPA-recovery phase. Factors such as high credit growth, recovery of NPA, and margin improvement should trigger earnings upgrades, it said.

IndusInd Bank

PhillipCapital expects the bank to report strong performance led by robust growth in advances.

“Merger with Bharat Financial will enable the entity to realise synergies in funding costs and opportunity to drive revenues from cross‐selling,” analysts at the firm wrote in their report.

State Bank of India

The lender has opportunity to grow its loan book by acquiring good‐quality assets from NBFCs. Normalised credit cost will lead to +12 percent RoE by FY20.

DCB Bank

The bank competes in the self‐employed segment and is expected to gain pricing power and market share from NBFCs, it said.


The brokerage believes that the lender is a compounding growth story, with less risk.

“We expect sustainable growth opportunity for the bank, which will enable it to deliver a consistent 20 percent earnings growth with stable asset quality,” analysts at the firm wrote in their report.

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first published: Dec 13, 2018 11:29 am
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