Goldman Sachs said it remains selective and reiterate its ‘Buy’ rating on HDFC Bank, Kotak Mahindra Bank, Axis Bank Ltd, IndusInd Bank and Bandhan Bank among private players.
Foreign brokerage Goldman Sachs has cut its ratings on YES Bank Ltd shares to ‘Sell’ and cut its rating on State Bank of India and ICICI Bank Ltd to ‘Neutral’ from ‘Buy. Besides, the broking firm retained its ‘Buy’ rating on HDFC Bank but upgraded Bajaj Finance to ‘Neutral’ from Sell’. All players face the dilemma of maintaining market share or compromising margins in the wake of stronger balance sheets across the sector, the foreign brokerage said.
Goldman Sachs said there are several headwinds to deposit rates including alternatives such as stock market investments and said the Goldilocks period of strong growth and visible profitability is over in the short run. It raised concerns over consumer leverage and said return on asset is likely to moderate going ahead. Goldman Sachs has slashed its earnings estimates for banks across its coverage by 5 per cent for FY25 and 2 per cent for FY26, saying the Goldilocks period is over for the financial sector.
YES Bank, SBI, ICICI Bank price targets
For SBI, the brokerage suggested a target of Rs 741; it sees ICICI Bank at Rs 1,068 while its target price for YES Bank came in at Rs 16. For Bajaj Finance, Goldman Sachs suggested a target of Rs 6,815 while the battered shares of HDFC Bank got a target of Rs 1,915 from the foreign brokerage.
Headwinds to deposit rates
Goldman Sachs sees multiple headwinds to deposit growth and said the system would require to offer attractive rates to make bank-deposits attractive. It said strained financial savings, the rise of alternatives such as stock market investments and strong growth in alternate government schemes such as PPF and small savings are a few headwinds.
Goldilocks period over
Goldman Sachs said its FY25 and FY26 estimates are below consensus on aggregate PAT by 2 per cent and 1 per cent. However, for select names, it lowered its estimates by mid-to-high single digits.
“We believe the proverbial Goldilocks period of strong growth and visible profitability is over for the financial sector in the near term, as headwinds are increasing such as rising pressure on cost of funds due to structural challenges in the funding environment.
Consumer leverage
Goldman Sachs said there were growing concerns on rising consumer leverage, which is posing as a potential asset quality challenges, particularly in unsecured lending. Besides, it said there is pressure on operating costs due to elevated wage inflation as well as the need to expand the distribution network for future deposit growth.