Bank Stocks Outlook for the week (21-24.08.2012)

[rupeedesk]

Bank Stocks Outlook for the week (21-24.08.2012)

Stocks of finance companies and banks are expected to move in line with the trend in the market next week. We recommend investors buy shares of private banks. They suggest investors exit stocks of public sector banks at every rise because the asset quality of state-owned banks is deteriorating.

Shares of public sector banks have under-performed those of private banks by 20-25% over the past six months. 

We reiterate our cautious stance given concerns of slower economic growth, loan growth, and higher NPLs (non-performing loans). We retain our preference for private banks over PSUs (public sector undertakings) on higher growth, profitability, and relatively better asset quality.

Shares of public sector banks are under pressure also because of their falling rate of return on equity, and their inability to tap the capital market freely due to government holding.

Since PSU banks are not generating enough internal capital and are also constrained in their ability to tap the capital market freely, their Tier-I capital ratios remain low, despite the recent capital infusion by the government. This is a matter of concern since it leaves them with little capital to cover future losses and would also constrain their growth. BRICS Securities has recommended investors buy shares of Axis Bank, ICICI Bank, HDFC Bank, and Bank of Baroda.

By RUPEE DESK

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