ICICI Bank, Axis Bank, IndusInd Bank, SBI Card: These are Jefferies' top financial stock picks
Jefferies said banks expect sector credit growth to moderate towards 12-13 per cent this year but timeline may be longer as corporate may prefer bank loans (floating rate) over bonds (fixed rate) at start of falling rate cycle.
- May 30, 2023,
- Updated May 30, 2023 11:16 AM IST
Jefferies hosted 19 financials at its India forum last week, following which the foreign brokerage said it prefers NBFCs over banks. Jefferies likes stocks such as Bajaj Finance, SBI Card, Cholamandalam Investment and Can Fin Homes among NBFCs. Among banks, the foreign brokerage has a liking for ICICI Bank, Axis Bank and IndusInd Bank. HDFC Life and SBI Life are its top picks from the insurance sector, Jefferies said in a note on May 30.
As per Jefferies, banks see moderation in credit growth and net interest margin (NIM), but are confident of quality and return on equity (ROE). NBFCs, it said, expect strong growth in consumer loan and wholesale-NBFCs plan to granualarise loans.
Life insurers see a pickup in protection and limited impact of new tax-laws, Jefferies said. Fintechs, on the other hand, are focused on monetisation and long growth runway, Jefferies said while preferring NBFCs to banks. The brokerage likes ICICI Bank, Axis Bank, IndusInd Bank, SBI Card, Cholamandalam Investment, Can Fin Homes, HDFC, SBI Life and CMS Info in the financial space.
In the case of banks, Jefferies said banks expect sector credit growth to moderate towards 12-13 per cent this year but timeline may be longer as corporate may prefer bank loans (floating rate) over bonds (fixed rate) at start of falling rate cycle. Banks, it said, expect NIMs to taper-off as funding costs reprice, but FY24 NIMs may be stable YoY.
"Asset quality trends don't indicate signs of early-warnings and await clarity on ECL norms. While RBI has talked about some risks in unsecured loans, banks highlighted that private banks' unsecured loans continue to demonstrate strong underwriting trends whereas smaller-ticket loans originated by NBFCs/ fintechs may see some stress. We expect growth for banks to revert to normalised levels in FY24 as loan growth and NIMs moderate with scope for operating efficiencies. Our top picks among banks are ICICI Bank, Axis & IIB," it said.
In the case of non-banking financials, Jefferies said NBFCs citied buoyancy in demand in core sectors to aid growth and stable asset quality. Consumption financing NBFCs (Bajaj Finance & SBI Card) indicated that consumption is holding-up well with stable asset quality. The affordable housing financers expect strong demand and network expansion to drive growth. Wholesale NBFCs plan to build granular loan-book, it said.
"We believe that peaking out of rates/ even cuts, will be positive triggers for NBFCs from earnings and valuation perspectives. As highlighted in our note, we prefer NBFCs over banks and our top-picks are BAF, SBI Cards, Chola & Canfin," the brokerage said.
In the case of non-lending financials, Jefferies said life insurers are seeing improved growth in protection segment with uptick in demand and appetite from reinsurers. This is also a highly profitable segment. While change of tax norms led to some upfronting of growth in March, core-growth expectations among management (ex-estimated one-time in Mar-23) is in mid-high teens.
"Margins may have limited room to expand as insurers invest in expansion & building distribution. Asset managers are seeing steady inflows from Ulips and expect better flows into debt funds with stable rates. The new norms on charges will drag profits in FY25 and await final norms from SEBI. We expect life insurers to see healthy core-growth in FY24-25 and with limited linkage to fall in rates (unlike banks). Our top-picks are HDFC Life and SBI Life. Among small caps, we like CMS Info," it said.
Watch: Adani Ports, ITC, Patanjali Foods, Brightcom group, other stocks to watch on May 30, 2023
Jefferies hosted 19 financials at its India forum last week, following which the foreign brokerage said it prefers NBFCs over banks. Jefferies likes stocks such as Bajaj Finance, SBI Card, Cholamandalam Investment and Can Fin Homes among NBFCs. Among banks, the foreign brokerage has a liking for ICICI Bank, Axis Bank and IndusInd Bank. HDFC Life and SBI Life are its top picks from the insurance sector, Jefferies said in a note on May 30.
As per Jefferies, banks see moderation in credit growth and net interest margin (NIM), but are confident of quality and return on equity (ROE). NBFCs, it said, expect strong growth in consumer loan and wholesale-NBFCs plan to granualarise loans.
Life insurers see a pickup in protection and limited impact of new tax-laws, Jefferies said. Fintechs, on the other hand, are focused on monetisation and long growth runway, Jefferies said while preferring NBFCs to banks. The brokerage likes ICICI Bank, Axis Bank, IndusInd Bank, SBI Card, Cholamandalam Investment, Can Fin Homes, HDFC, SBI Life and CMS Info in the financial space.
In the case of banks, Jefferies said banks expect sector credit growth to moderate towards 12-13 per cent this year but timeline may be longer as corporate may prefer bank loans (floating rate) over bonds (fixed rate) at start of falling rate cycle. Banks, it said, expect NIMs to taper-off as funding costs reprice, but FY24 NIMs may be stable YoY.
"Asset quality trends don't indicate signs of early-warnings and await clarity on ECL norms. While RBI has talked about some risks in unsecured loans, banks highlighted that private banks' unsecured loans continue to demonstrate strong underwriting trends whereas smaller-ticket loans originated by NBFCs/ fintechs may see some stress. We expect growth for banks to revert to normalised levels in FY24 as loan growth and NIMs moderate with scope for operating efficiencies. Our top picks among banks are ICICI Bank, Axis & IIB," it said.
In the case of non-banking financials, Jefferies said NBFCs citied buoyancy in demand in core sectors to aid growth and stable asset quality. Consumption financing NBFCs (Bajaj Finance & SBI Card) indicated that consumption is holding-up well with stable asset quality. The affordable housing financers expect strong demand and network expansion to drive growth. Wholesale NBFCs plan to build granular loan-book, it said.
"We believe that peaking out of rates/ even cuts, will be positive triggers for NBFCs from earnings and valuation perspectives. As highlighted in our note, we prefer NBFCs over banks and our top-picks are BAF, SBI Cards, Chola & Canfin," the brokerage said.
In the case of non-lending financials, Jefferies said life insurers are seeing improved growth in protection segment with uptick in demand and appetite from reinsurers. This is also a highly profitable segment. While change of tax norms led to some upfronting of growth in March, core-growth expectations among management (ex-estimated one-time in Mar-23) is in mid-high teens.
"Margins may have limited room to expand as insurers invest in expansion & building distribution. Asset managers are seeing steady inflows from Ulips and expect better flows into debt funds with stable rates. The new norms on charges will drag profits in FY25 and await final norms from SEBI. We expect life insurers to see healthy core-growth in FY24-25 and with limited linkage to fall in rates (unlike banks). Our top-picks are HDFC Life and SBI Life. Among small caps, we like CMS Info," it said.
Watch: Adani Ports, ITC, Patanjali Foods, Brightcom group, other stocks to watch on May 30, 2023