Buy Axis, SBI, Federal, Karur Vysya shares; Kotak, Bandhan Bank top sells: Ambit Capital

Ambit Capital in its March quarter review note said the banking sector remains in the pink of health, with its credit growth being steady 16 per cent YoY, net interest margin (NIM) stable sequentially and credit cost well below long-term average. Return on equity (ROE) for the banking sector in fact was close to a decadal high of 13 per cent for yet another quarter, it said. 

Ambit Capital said valuations for the sector is still near long-term average, driving its positive stance on banks. 

It prefers Axis Bank Ltd and State Bank of India (SBI) in large banks, Federal Bank and Karur Vysya Bank in regional banks, and IndusInd Bank in mid-size banks. 

Kotak Mahindra Bank Ltd and Bandhan Bank Ltd are its top 'Sell' recommendations. 

"Trends from banking results show that the sector is in the pink of health with high capital levels, high coverage on NPAs, stable asset quality, loan growth holding consistently at 15-16 per cent YoY and NIMs still at the upper end of long-term range. Loan growth is resilient and broad-based," it said.

The brokerage said after RBI's increased risk weight on fast growing segments like NBFCs and unsecured loans in November 2023, and deposit growth being lower than loan growth, growth was expected to moderate. 

"However, loan growth stayed resilient at 16 per cent YoY sector loan in 4QFY24," it said.

Increased risk weights did slow down growth in personal/credit card/NBFC loans, pick-up in home loans, real estate developer loans, and agricultural and large corporate loans offset the impact, Ambit Capital said.