SBI, ICICI and BoB hit 52-week highs

With good growth in credit demand, banking stocks continue to do well. Private sector lender ICICI Bank closed Friday’s session at Rs 901.55, up 0.29%, reaching Rs 911.75 in intraday trading, a 52-week high. Bank of Baroda (BoB) stock also hit a 52-week high at Rs 557 on Friday – it ended at Rs 553.45, up 1.6%. State Bank of India also hit a 52-week high at Rs 557 before closing at Rs 553.45, up 1.61%.

On Friday, the Bank Nifty closed at 40,415.7, up 0.5%. Since mid-June, the gauge has added almost 24%.

Loan growth in the fortnight ending August 26 was well over 15% year-on-year. Outstanding credit in the banking system stood at Rs 124.3 trillion at the end of August 26, with banks having lent nearly Rs 6 trillion between April and the end of August. In contrast, banks had recorded negative loan growth of around Rs 60,000 crore in the period a year ago.

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Banks’ concern would be more about deposits, since these have grown at a much slower pace. For example, between April and August, aggregate deposits increased by 5.3 trillion rupees, compared to 4.03 trillion rupees in the comparable period of 2021.

The lenders raised funds via AT-1 bonds. SBI mopped up the cash via an AT-1 tranche at the lowest rate of any bank so far this year. The issue was for bonds worth Rs 6,900 crore at 7.75%.

Morgan Stanley believes strong balance sheets, diminishing macro concerns and improving capacity utilization set the stage for an upward capex cycle in F24-F25. The brokerage believes this could lead to a second round of re-rating of Indian banks. The brokerage raised loan growth estimates by two percentage points to 16% for F24 and by 3 percentage points to 17% for F25. This, coupled with lower borrowing costs, leads to upward revisions to earnings estimates. The company said it expects a 2 percentage point upgrade to earnings growth before provisioning and higher RoE (return on equity) assumptions.

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