Nine out of the 12 Bank Nifty stocks advanced on Wednesday, with Federal Bank gaining the most at 6% and Bank of Baroda, Punjab National Bank and Canara Bank surging by more than 2% each. Kotak Mahindra Bank declined the most, by 1.67%.
According to a June 4 report by Morgan Stanley Asia/Pacific Research, Indian financials are likely to be among the best performers across EM banks over the next five years. ?As the economy normalises, lower credit costs should provide support to earnings. Another factor in favour of Indian banks is that they are the only banking sector in emerging Asia that is coming out of a bad loan cycle.?
The report further added that revenues of banks are expected to grow at a CAGR of 17% to $145 billion by FY19 ? 4.2% of the GDP, from the current 3.5%. ?Large private lenders will deliver 18-24% CAGR in returns over the next five years, we estimate. SOE (state-owned enterprise) banks, on the other hand, will do less well ? the positive impact on earnings from a stronger economy will likely be negated by the large dilution that we expect to occur over the next five years,? it states.
The improvement in the economy is expected to help drive higher credit demand and banks will likely be more open to giving loans, stated Morgan Stanley: ?This should help drive loan growth in India at 16.5% CAGR over the five years to F2019.? The brokerage also expects bank deposits to see a 16% growth CAGR, which could translate into banking sector balance sheet CAGR of 16% as well.
