Analysts Bullish on PSU Banks
Friday, August 28, 2009
Resumption of capital flows has reduced stress on asset quality. Moreover, core revenue momentum should pick up strongly in F2H10. Given valuations, analysts believe that SOE banks are the best way to play this theme and are likely to outperform their private sector peers. We continue to like wholesale funded institutions as well.
Bond yields are moving up and there are expectations of tightening. SOE banks are now relatively immune from MTM losses, unless yields spike up more than 200 bps. Moreover, the 5 year trend of contracting spread on bond portfolios is behind us - implying rising yields will cause NIMs to move up. Expect stocks to do materially well in F2H10.
In the F1Q10 results, SOE banks' core ROE averaged mid-teens. We expect NIMs to improve from 3Q onwards; this, coupled with strong fees, should cause profitability to keep improving. We expect reported ROE to average 16% for SOE banks this year.
Top Down Picks include SBI, PNB, Bank of India, Bank of Baroda and Union Bank.
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Published by Webmaster @ 11:07 AM IST.
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Infosys downgraded to Underweight - Morgan Stanley
Thursday, August 27, 2009
Since the Ground realities in the IT sector warrant caution, Morgan Stanley has downgraded Infosys Technologies from Equal-weight to Underweight.
Valuations for Infosys appear rich and near-term risk reward is turning unfavorable. Lack of visibility on ramp-ups from existing clients remains the single biggest headache for managements across IT companies.
Linear extrapolation of margin expectations appears to be a key risk, in our view. MS estimates that wage cost savings have come primarily from attrition and shifting of employees to offshore. Channel checks indicate that the pace of offshore shift has slowed down considerably.
Even though the stock is already trading above Rs 1700 target price, in the near-term incremental upside should be sold rather than bought in our view. Infosys has been our preferred pick amongst the large caps in 1H09. Going forward, TCS/Wipro could narrow their trading discount to Infosys.
Infosys is expcted to report an EPS of Rs 104 and Rs 113 for FY 19 and FY 11 respectively. Appears overvalued to the growth it has on its hands.
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Published by Webmaster @ 9:55 AM IST.
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