Thanks to this and better net interest margin outlook, the foreign brokerage also revised its FY21 earnings estimated by about 115 per cent for major banks like State Bank of India, Axis Bank, ICICI Bank, IndusInd Bank, HDFC Bank
and Kotak Mahindra
Sanjiv Bhasin, director at IIFL Securities, also says, “expectations of improvement in asset quality with regulatory support, better credit growth
and lower valuations are supporting the rally in banking stocks.” He expects these stocks to outperform and sees the Nifty Bank index reaching the 27,000 mark by December, implying a further 10 per cent upside.
Additionally, analysts said rising inflation might put an end to the central bank’s interest rate-cutting cycle and boost banks’ prospects. “Banks will come into focus in this re-inflation scenario. It will increase their net interest margin and is good from a business point of view. They make up a large part of the index and will lead the rally,” Sameer Kalra, strategist, Target Investing said to Bloomberg.
The recent capital infusion in banks, which some analysts believe is helping reduce balance sheet risk, is driving investor interest toward these stocks.
Rohan Madora, analyst at Equirus Securities, says: “Stricter restructuring guidelines with time limitations will ensure only pandemic impacted cases will be restructured. Additionally, pace of economic recovery will be a key monitorable. Overall, we believe slippage out of fresh restructured pool would be lower than the previous cycle.” The jury is out on this.