Expect Q4 earnings of banks to be subdued: Sharekhan

MUMBAI: Earnings of Indian banks for quarter ended March 2012 are likely to remain subdued due to the rise in the credit cost and a sluggish growth in the non-interest income, says Sharekhan report.

The brokerage expects banks in its coverage universe to report an earnings growth of 11.3 per cent year on year compared with the 12.6 per cent growth in Q3FY2012 and 15.3 per cent increase in Q2FY2012.

“The margins of banks may come off by 5-15 basis points driven by a rise in the cost of funds which could affect the growth in the NII in the coming quarters. The banking stocks have appreciated from the lows of Q3FY2012 and are trading at a marginal discount of their five-year mean valuations,” the report said.

The policy review meeting of the Reserve Bank of India later this month is likely to drive valuations going ahead.

“Going ahead, the timing and magnitude of the RBI's rate cuts will be the key driver of valuations,” it added.

Sharekhan prefers banks like ICICI Bank and Axis Bank in private sector and Allahabad Bank among the public sector banks.

“We expect the private sector banks to report a relatively better performance (an NII growth of 19% YoY and a net profit growth of 19.3%) with lesser asset quality strain,” it said.

Disclaimer:

"The analyst may have a position in the scrip mentioned above, the views given above are the personal views of the analyst"