India’s financial sector is set for a strong growth in the next twelve months, a global investment bank and financial services firm said Tuesday. Over the coming one year, country’s banking sector and NBFCs would post a robust 27 percent upside, Reuters reported citing Morgan Stanley. The sector may continue to expect strong earnings progression, the investment bank also said. However, there is a lesser room for re-rating as the multiples are rich, it added.
The market capitalisation of financial sector would grow to $1.8 trillion in next 10 years and its share in India’s market capitalisation would increase from nearly 22 percent currently to 30 percent by 2027, Reuters reported citing American multinational bank.
Morgan Stanley also said the corporate lenders would soon begin reporting strong revenue growth as they have started coming out of an NPL cycle. The global investment bank also said that the lenders with rich liquidity, leverage to corporate credit cycle, and enough pricing power would perform good in the current cycle.
The global investment bank places bets on the four leading banking stocks – ICICI Bank, HDFC Bank, State Bank of India (SBI) and Axis Bank. “Valuations are attractive and if rates remain high, net interest margins should do well or allow banks to price out other players from higher-quality loans,” Morgan Stanley said.
However, Morgan Stanley downgraded Kotak Mahindra Bank and Yes Bank to ‘equal-weight’, and Bank of Baroda to ‘underweight’.
The global financial services company preferes relatively strong liability franchises, such as Housing Development Finance Corp (HDFC) and those with pricing power in target segments and at reasonable valuations, such as Shriram Transport Finance, Mahindra and Mahindra Financial Services. On Bajaj Finance, Morgan Stanley said that the stock is positioned well but at an expensive valuation.