A big theme that will play out is normalisation of asset quality, says Krishnan ASV, Lead Analyst, SBI Caps. While speaking to ETNow, he in fact points to the ongoing moderation in bad loan formation.
What we are poised for when it comes to this quarter, earnings specifically with regard to some of these corporate banks? How are they expected to do?
Normalisation of asset quality will be a key trigger that has already been playing out for about 3-6 months across lenders. So, that will continue to play out.
We do not expect any incremental news flow that surprises us negatively on the asset quality. Largely, we have passed that hump. NPL formation definitely is moderating. But credit cost will continue to stay a bit elevated even into the first quarter or first half of FY20.
Investors will definitely take a lot of positives as long as NPL formation moderates further.
We have already seen HDFC Bank in the quarter gone by made it to a fresh high for itself. Do you somewhere believe that all the positives the earnings may actually pose are already in the price, the market has already made that assumption and the stocks have already moved forward?
Yes, partly true. There are days in the last two months or so where we have struggled to find upsides to what we have already put out. Most of the forecasts we have put our are definitely building in a fair amount of optimism in earnings recovery. So is there room for those earnings to be further revised upwards? Very very isolated, but is there a possibility of reflation in asset multiples or just valuation multiples for some of these banks? I think that happens with greater visibility.
Once you start getting confident that you are past the hump and the worst is behind, then investors who are currently pegging a stock at say two times or anywhere between 2-2.5 times could look at say a 10 per cent reflation in valuation mRead More – Source