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    Bofa Turns Bearish On Indian Banks Sbi, Icici Bank, Indusind Downgraded

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    Rohan Vijay
    Bank of America has downgraded its ratings for major Indian banks like SBI, ICICI Bank, and IndusInd Bank due to risks from economic deterioration. Only HDFC Bank remains rated "buy" but with a reduced price target. BofA expects a new NPA cycle across corporate and retail segments through FY21-22, resulting in downside risks to bank valuations. Major alleviating factors are unlikely in the near term as the RBI's liquidity injections face bottlenecks and the government's fiscal capacity remains constrained.

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    Bofa Turns Bearish On Indian Banks Sbi, Icici Bank, Indusind Downgraded

    Uploaded by

    Rohan Vijay
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    Bank of America has downgraded its ratings for major Indian banks like SBI, ICICI Bank, and IndusInd Bank due to risks from economic deterioration. Only HDFC Bank remains rated "buy" but with a reduced price target. BofA expects a new NPA cycle across corporate and retail segments through FY21-22, resulting in downside risks to bank valuations. Major alleviating factors are unlikely in the near term as the RBI's liquidity injections face bottlenecks and the government's fiscal capacity remains constrained.

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    Bank of America has downgraded its ratings for major Indian banks like SBI, ICICI Bank, and IndusInd Bank due to risks from economic deterioration. Only HDFC Bank remains rated "buy" but with a reduced price target. BofA expects a new NPA cycle across corporate and retail segments through FY21-22, resulting in downside risks to bank valuations. Major alleviating factors are unlikely in the near term as the RBI's liquidity injections face bottlenecks and the government's fiscal capacity remains constrained.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views4 pages

    Bofa Turns Bearish On Indian Banks Sbi, Icici Bank, Indusind Downgraded

    Uploaded by

    Rohan Vijay
    Bank of America has downgraded its ratings for major Indian banks like SBI, ICICI Bank, and IndusInd Bank due to risks from economic deterioration. Only HDFC Bank remains rated "buy" but with a reduced price target. BofA expects a new NPA cycle across corporate and retail segments through FY21-22, resulting in downside risks to bank valuations. Major alleviating factors are unlikely in the near term as the RBI's liquidity injections face bottlenecks and the government's fiscal capacity remains constrained.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    BofA turns bearish on Indian

    banks; SBI, ICICI Bank,


    IndusInd downgraded
    SBI, ICICI Bank, IndusInd downgraded; only HDFC Bank in 'buy' category
    Topics
    Bank of America | Kotak Mahindra Bank | IndusInd Bank
    Samie Modak  |  Mumbai Last Updated at May 6, 2020 01:02 IST

    Banking stocks crumbled in Tuesday’s trade with the Bank Nifty index dropping 2.4%,
    underperforming the Nifty index, which fell about 1%

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    Bank of America (BofA) has slashed price targets for domestic banking stocks, citing downside risks
    to valuation multiples because of the deterioration in the economy. The brokerage has downgraded
    its rating for State Bank of India (SBI), ICICI Bank, and IndusInd Bank from ‘buy’ to ‘neutral’ or
    ‘underperform’. HDFC Bank remains the only banking stock with a ‘buy’ rating. However, this stock,
    too, has seen a reduction in its price target.

    “In the wake of a historic output loss, followed by potentially a prolonged (long bottom) economic
    recovery during FY21-22, we further downgrade our sector view. We now move closer to a stress
    case scenario in FY21-22 as we expect the current economic situation will drive paradigm changes
    in the sector in the near to medium term. More than just the growth slowdown, we are now on the
    verge of a new (and unique) NPA cycle panning across the corporate and retail segments lasting
    through at least FY21-22,” BofA said in a note to its clients on Tuesday.

    Banking stocks crumbled in Tuesday’s trade with the Bank Nifty index dropping 2.4 per cent,
    underperforming the Nifty index, which fell about 1 per cent.

    ALSO READ: States so far distribute 61% of April quota under Garib Kalyan Yojana

    The weak outlook for banking stocks is negative for the market as a whole, given the sector’s high
    weighting in the benchmark indices.

    IndusInd Bank has seen the sharpest cut in its price target, followed by Bank of Baroda and
    SBI. HDFC Bank has seen a modest 4 per cent cut in its price target, while Kotak Mahindra
    Bank has seen a slight increase.
    “We will likely see liability consolidators (led by HDFC Bank, Kotak Mahindra Bank, and SBI) emerge
    stronger over the medium term, but until the current NPA cycle peaks, we see downside risks to
    valuation multiples,” BofA analysts Anand Swaminathan and Nidhi Singh stated in the note.

    The brokerage says banking stocks are unlikely to see a bullish phase until at least the end of the
    current financial year.

    ALSO READ: Cash-market volumes hit record highs in April amid a rebound in stocks

    “Our key concern is lack of major alleviating factors in the near term as various stakeholders remain
    hamstrung -- 1) the RBI’s massive liquidity injections not having the desired effect due to various
    bottlenecks and risk aversion at banks; 2) government fiscal capacity to backstop NPA losses
    remain constrained given the social priorities and revenue slowdown; 3) mid-size banks and NBFCs
    (the key marginal risk takers over the past cycle) now forced to severely curtail their growth plans in
    the near term. As a result, we find it difficult to construct a bull case scenario in FY21, with some
    potential for surprises in FY22 if a few of these bottlenecks are fixed along with global rebound,” the
    note said.

    BofA says valuation for the banking sector is correlated to bad loans or non-performing assets
    (NPAs).
    “History suggests that valuation multiples have a high correlation with the NPA recognition cycle and
    usually bottom at best two-three quarters before the NPA peak,” it said, adding, the current NPA
    recognition cycle will begin only in September.

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