'Fantastic' Earnings could give Indian Banking Stocks a Boost

Indian bank stocks have shaken off a hit from one of the world’s worst debt piles to become the drivers of the nation’s equity outperformance against major global peers this year.

Five of the nation’s six biggest banks have reported earnings for the latest quarter that either matched or exceeded consensus expectations. While that’s helped push the S&P BSE Bankex up 17% this year to an all-time high, it is still trading around its 10-year average earnings-based valuation.

“We are probably in one of the most important Cinderella times of the credit cycle,” Uday Kotak, the billionaire managing director of Kotak Mahindra Bank Ltd., said on Saturday. The lender’s quarterly results topped analyst estimates on a recovery in demand for businesses loans.

Banks and shadow lenders have a more than one-third weight in the broader S&P BSE Sensex, which is up more than 2.5% so far in 2022, beating benchmarks in all markets with a total value of at least $1 trillion, except Saudi Arabia.

Lender fundamentals have improved on successful resolution of some the biggest soured debts, creation of a bad bank to offload trouble loans and a sharp recovery in credit demand despite rising rates.

Banks in India have reported “absolutely fantastic numbers, way better than most sectors, and in fact completely out of sync with what is happening globally,” said Macquarie Group Ltd. analyst Suresh Ganapathy.

The sector now has a “pristine” corporate portfolio and legacy bad debts have been largely provided for, Ganapathy said.