Goldman Sachs downgrades SBI, ICICI Bank, Yes Bank; upgrades Bajaj Finance and reiterates buy on HDFC Bank. Check detail
State Bank of India (SBI), ICICI Bank, Yes Bank, as its sees multiple challenges ahead for the financial sector companies. However it upgrades Bajaj Finance and reiterated buy on HDFC Bank.
Goldman Sach analysts said that the earnings of financial sector are facing multiple challenges ahead and thereby they have cut the earnings estimates across companies in their coverage universe by 5% and 2% on an average over FY25 and FY26 respectively . Goldman Sachs analysts believe the proverbial Goldilocks period i.e the period of strong growth & strong visible profitability, is over for the financial sector in the near-term and headwinds are increasing .
The major headwinds that Goldman Sachs highlighted include- 1.Rising pressure on cost of funds due to structural challenges in the funding environment Also read- Jio Financial Services share price jumps 14% to a record high; market cap crosses ₹2 lakh crore 2) growing concerns on rising consumer leverage posing potential asset quality challenges, particularly in unsecured lending ($127 billion loan book in the sector) leading to higher credit costs and hence they prefer commercial retail over consumer retail which is expected to grow faster and offers a much better returns profile 3. pressure on operating costs due to elevated wage inflation as well as the need to expand the distribution network for future deposit growth.
As per Goldman Sach ROAs for the financial companies are expected to moderate from hereon. ROA ratio is company's net, after-tax income divided by its total assets.
The valuations of financial institutions are at a comfortable level though, they said The Indian banks had witnessed sharp ROA expansion during FY20-3QFY24 period. Goldman Sachs analysts believe
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