Moneycontrol Bureau
Shares of PSU banks continue to fall dragging the Bank Nifty sharply on Friday. Morgan Stanley is underweight on all public sector banks except Bank of Baroda and says this is an opportunity to sell. The brokerage sees a 30 percent downside as it thinks other PSU banks (except BoB) face sustained low profitability and weak balance sheets.
Morgan Stanley warns that commodity price declines will hurt asset quality materially as PSU banks have fairly high exposure to this area and hence earnings per share (EPS) revisions may continue to be downward and stocks should remain weak.
Unimpressed by Indradhanush, government's seven-pronged strategy for bank's survival, Morgan Stanley thinks it is not enough for the banks to make proper provisions and start growing. "Until then, they will likely keep pushing non-performing loans (NPLs) into the future, provisions will bleed in, and multiples will keep de-rating given a lack of investor trust in balance sheets, in our view," it says in a note.
The government has assured capital infusion of Rs 20,088 crore into 13 PSU banks within a month's time with country's largest lender SBI cornering a hefty Rs 5,531 crore.
The brokerage also is concerned that pre-provision operating profit (PPoP) margin, which is already close to credit costs, could decline materially, implying potential losses for some banks.
Meanwhile, SBI remains to be Morgan Stanley’s least-favoured large cap stock as it ROE for SBI will be 12-13 percent even once credit costs normalise, which is likely In 2-3 years away. There may be further equity raises and return on assets (ROA) is unlikely to move above 0.8 percent unless the economy picks up sharply.Posted by Nasrin SultanaFollow @NasrinzStory
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