Valuations of large private banks oblivious to improved earnings outlook: Santanu Chakrabarti, BNP Paribas
Current valuation discounts in large private banks seem to be completely oblivious to the positive surprises and improved earnings momentum outlook, says Santanu Chakrabarti, Analyst – Banking and Finance at BNP Paribas.
“This dichotomy appears incongruous as we also note best-in-decades balance-sheet hygiene, ample loan growth and materially higher operating costs already baked into the financials,” he says. HDFC Bank is the top pick of the brokerage within the banking space with a target price of Rs 2,470. Edited excerpts from a chat:
What are your key takeaways from the overall earnings season as far as the financial services sector is concerned? How has the outlook changed now for FY25?
Santanu Chakrabarti: The only headline negative surprise in 4QFY24, among our largecap banking coverage, was HDFC Bank.
Even that solitary example was a marginal disappointment from the high expectations set by pre-quarterly disclosures and had plenty of redeeming texture to internals. Across the board, earnings reports and management commentary also put to bed some of the worst fears around liability availability choking out credit growth in the sector.
Crucially, consensus management opinion resonated a near peak on cost of funds, implying that further incremental margin pressures are limited. This contention also found credibility from mostly in-line margin performance for large banks as well as meaningful margin beats delivered by Axis Bank/Kotak Mahindra Bank to consensus expectations.
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