Nomura India, which met 30 institutional investors in Singapore and Japan's Tokyo, during its analyst marketing trip for India banks, said investor feedback is mixed on HDFC Bank despite a strong recent stock price performance -- they see upside capped. It said the institutional investors had continued interest in State Bank of India (SBI) and better quality PSU bank names. They see challenging road ahead for largecap banks, except for ICICI Bank Ltd, amid asset quality worries.
For mid-sized banks, the juice may not be worth the squeeze, barring Federal Bank Ltd, Nomura India reported.
In the case of HDFC Bank, Nomura said investors were largely sanguine that HDFC Bank is getting things back on track with management’s clear prioritisation on bringing down LDR.
"Most investors appear to have made peace with lower near-to-medium term loan growth trajectory. Investors expect HDFC Bank’s asset quality to hold up well, at a time when this is becoming as an increasing concern for other lenders," it said.
That said most investors in Singapore and Tokyo also agree that following HDFC Bank's recent stock run-up, upside may be capped.
"We found continued interest for owning PSU banks, led by increased confidence in asset quality and hence RoE delivery. Some investors also believe that these offer better upside in case of any potential capex-led pick-up in corporate loan growth," Nomura said.
The outperformance on loan growth will be key for PSU banks’ stock price delivery from here on they felt. These foreign investors are more open towards SBI and relatively higher quality PSU names such as Bank of Baroda (BOB) than towards more risk-on names.
"For the broader private sector banking pack, we found investors to be very comfortable on ICICI Bank. However, beyond ICICI and HDFC Bank, investors were relatively cautious on softening asset quality trends among large private banks," it said.
In its conversations, Nomura found investors to have relatively higher interest in Axis Bank considering its benign valuations and relatively steady asset quality delivery in Q2FY25.
In the case of mid-sized banks, Nomura found investors to be especially concerned over MFI asset quality, and relatively fewer takers here, despite steep stock price corrections across the space.
"Federal Bank remains our most-preferred name among mid-sized banks and we continue to see positive traction here," it said.