The banking sector is teeming with positivity and they have valid reasons for that.
The September quarter numbers of a majority of banking players have exceeded market expectations.
Among the six large banks - Kotak Mahindra Bank, ICICI Bank, HDFC Bank, Axis Bank, IndusInd Bank and SBI - five have declared their September quarter numbers so far, barring SBI which will declare its Q2FY23 numbers on November 5.
Kotak Mahindra Bank saw a 27% year-on-year (YoY) rise in net profit to ₹2,580.68 crore for the September quarter.
ICICI Bank's net profit jumped 37% YoY to ₹7,558 crore in Q2FY23. HDFC Bank reported a 22.30% rise in its consolidated net profit for Q2FY23 at ₹11,125.21 crore.
Axis Bank reported a 70% YoY jump in consolidated net profit at ₹5,330 crore for the September quarter, and IndusInd Bank reported a 60.4% YoY jump in net profit at ₹1786.72 crore for the September quarter.
After healthy June quarter numbers and an impressive credit uptick, better-than-expected September quarter numbers seem to have impressed analysts.
"Results of the financial sector were strong on all parameters. We have seen most of the banks have surpassed investors' expectations on interest income, net profit, margins and asset quality. Among the private sector banks, Axis Bank delivered the largest surprise on all parameters. Commentary of most of the banks were strong for the future also," said Abhishek Jain, Head of Research, Arihant Capital.
Ajit Kabi, Banking Analyst at LKP Securities also concurs that banks have reported strong results in Q2FY22.
"The credit growth was healthy with strong net interest margin (NIMs) expansion. On the asset quality front, the banks have witnessed NPA improvement with ease In restructuring pools. Robust operating performance and low credit cost have led to strong profitability," said Kabi.
Kabi, however, added that deposit growth across the system remains muted, excluding HDFC Bank.
"In order to maintain strong NIMs, the banks have to be aggressive on deposit mobilisation. The NIMs stability and deposit growth will be key monitor-able in the coming period," said Kabi.
Apart from better-than-expected quarterly numbers, healthy recovery in loan growth, better lending margins and controlled provisions have boosted banking stocks this year so far.
Year-to-date (as of October 28), the Nifty Bank index is up 15.5% against a 2.5% gain in the benchmark Nifty50. Some stocks like Axis Bank, IndusInd Bank and SBI have surged 33%, 29% and 24%, respectively, YTD.
As media reported widely, bank credit rose by 17.94% YoY to ₹128.6 trillion as of October 7, according to data from the Reserve Bank of India (RBI).
This momentum is likely to continue and analysts are positive about the banking stocks due to improved fundamentals and the prospects of the country's healthy economic growth.
Analysts also point out that banks look well-capitalised and well-positioned for stress assets. Their loan book also seems to be clean as compared to the previous cycle.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.
