Jefferies LLC, an American global investment bank, has come out with its expectations on the ‘haircut’ front for the stressed assets of the banks. Jefferies expects 50 percent haircut across the stressed loans for the SBI, HDFC and Axis Banks. Similarly, it sees 80 percent haircut for PNB and Bank of Baroda. A 10 percent higher haircut implies a further 5-12 percent decline in book value per share. So, the global research firm is bullish on the stocks of SBI, HDFC and Axis Bank and maintains ‘hold’ rating on the PNB and Bank of Baroda stocks. In order to recover the NPA-laden banking system, the central government in October this year announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed PSU (public sector undertaking) banks. The government bifurcated the entire Rs 2.11 lakh crore amount in two parts: First, through budgetary allocation and second, by issuing recapitalisation bonds. The government plans to infuse Rs 76,000 lakh crore capital by giving it space in budgetary allocation and through markets, and rest 1.35 lakh crore by issuing recapitalisation bonds. Banking stocks in India are on the up move since then, backed by the government’s continued statements about resolving the problem of stressed loans and helped by strong fundamentals.
Here are top three picks by the Jefferies:
State Bank of India
Jefferies recommends ‘buy’ rating on State Bank of India with a target price of Rs 385 implying an upside of 17 percent from its current market price of Rs 327. SBI has recorded 31 percent returns since January this year. SBI posted multi-fold jump in consolidated net profit at Rs 1,840.43 crore for the second quarter ended on September 30. At the end of September, its gross NPAs rose to Rs 1,86,114.60 crore, from Rs 1,05,782.96 crore at the second quarter of the previous fiscal. Net NPAs increased to Rs 97,896.29 crore, against Rs 60,013.45 crore.
The research firm recommends ‘buy’ rating on HDFC Bank with a target price of Rs 2165 implying an upside of 15 percent from its current market price of Rs 1873. HDFC Bank has recorded 55 percent returns since January this year. The net profit, which came on the back of healthy growth in deposits and advances, rose to Rs 4,151 crore from Rs 3,455 crore in the year-ago quarter. In Q2, gross NPAs remained stable at 1.26 percent, as compared to 1.24 percent in the previous fiscal as a percentage of total advances and stood at Rs 7,703 crore against Rs 7,243 crore in the previous quarter
Jefferies advises a ‘buy’ call on Axis Bank share with a target price of Rs 635 implying an upside of nearly 16 percent from its current market price of Rs 548. Axis Bank has recorded 22 percent returns since January this year. The private sector lender posted 35.51 percent year-on-year rise in net profit at Rs 432.38 crore for the second quarter ended September 30. Axis Bank’s gross NPAs rose to Rs 27,402.32 crore as on 30 September from Rs 16,378.65 crore a year ago and Rs 22,030.87 crore in June quarter.