Expecations from Indian Banks + Indian Brokerages – Negative

For the Indian Banks, this quarter is expected to be a leg down in net profits with 2.7% YoY growth for the sector. headline numbers is likely to be hurt, but keep an eye on deterioration in asset quality which will be the key operational parameter. Pre-provisioning profit growth should, however, remain relatively stable at 26.6%, driven by 25% loan growth, reasonable fee growth (23% YoY) and capital support for margins.

This quarter will be a test of the banks’ operational performance in the face of further rise in interest rates leading to lower growth and higher asset quality risks. Additionally, the impact of farm loan waivers shall also be seen in PSU banks.

In the private banking sector, profit growth is likely to be sharply lower at 17.2% YoY on slower capital market related fees, sustained cost pressures and loan loss provisions. Net interest margins should be supported by the sheer weight of capital and should drive pre-provisioning profit growth of 35% YoY.

Indian Brokerage houses are highly likely to report a decline in net profits QoQ. High pressure is seen in the following segments, retail brokerage (vs institutional); b) primary markets (vs secondary); and c) margin finance
portfolio (vs asset based lending). Retail volumes have shown a sharp decline – overall volumes down 54% from peak (-60% in derivatives). Cash volumes have fared better YoY (+40% vs +25% for derivatives) while QoQ they are relatively similar with declines of 16.8% vs 16.6%, respectively.

Brokerage and investment banking related fees to decline 18% QoQ due to the
weaker environment, both in the secondary and primary markets. Mutual Fund and other product distribution fees will also witness a decline.