Fundamental picks by Sharekhan: Capital First, LIC Housing Finance, Bajaj Finance among preferred picks in NBFC space

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New Delhi | Updated: August 23, 2016 9:04:59 AM

The first quarter of FY2017 stood one of the weakest quarters for the banking sector, mainly for public sector banks, according to Sharekhan

stocks to buy, nbfc, yes bankThe first quarter of FY2017 stood one of the weakest quarters for the banking sector, mainly for public sector banks, according to Sharekhan. (Reuters)

The first quarter of FY2017 stood one of the weakest quarters for the banking sector, mainly for public sector banks, according to Sharekhan. Public sector banks (PSB) continued to post disappointed topline and earnings growth on quarter-on-quarter basis. Overall asset quality of PSBs deteriorated for the quarter ended June 30, 2016, with gross non-performing assets on an absolute basis doubled on year-on-year basis. However slippages declined post the Reserve Bank of India’s (RBI) AQR in Oct-Dec 2015 and Jan-March 2016.

For April-June period, PSB registered lower slippages compared to the previous two quaters. However, Sharekhan said, “PSBs will continue to struggle with asset quality issues and repairing of their balance sheets before they start showing any meaningful growth in loan or advances book.”

However, private sector banks under the coverage of Sharekhan registered better operational performance for the quarter ended June 30, 2016. Net interest income of private sector banks jumped by 13 per cent on year-on-year basis and 0.7 per cent on quarter-on-quarter basis. According to Sharekhan, private banks maintained a relatively much better advances growth (up 19.6 per cent year-on-year in Q1FY2017) and believes that the loan book would show more traction in the second half of 2016-17 on account of demand from urban as well as rural sections of the economy. Private bank are better placed to capitalise on a significant array of opportunities from gradually improving economic scenario.

NBFC’s have performed better than banks during April-June 2016 quarter despite a difficult business environment. The brokerage house believes robust performance of NBFCs are likely to continue, especially consumer finance & SME focused NBFCs like Capital First and Bajaj Finance.

For coming months, Sharekhan in a report said, “We believe that earnings performance, further interest rate softening in the coming quarters are key positive for financial sector. Some of the imminent challenges include longer-than-expected economic revival. We continue to remain cautious and selective in the public sector bank. Despite higher valuations, we believe that a bottom-up strategy is better as of now, and prefer retail-focused private banks and NBFCs due to their relatively better structural growth story.” The brokerage house is bullish on YES Bank, IndusInd Bank, HDFC Bank in private sector bank space. Sharekhan is bullish on Capital First, LIC Housing Finance, Bajaj Finance, PTC India Financial in NBFC space and on SBI among the the public sector banks.

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