DSPML in a report expects private banks led by HDFC to Outperform the market; top line growth to be weak for govt. banks owing to margin compression and lower loan growth. Private banks should still deliver 25-30% growth. Key risks are to FY09E growth. It estimates this could impact govt. bank earnings by +10-14%, halving the earnings growth to 5-15% from +20-25%.
Private banks’ anticipated earnings growth of +25-30% should be driven by their ability to gain market share and customers as they rapidly expand their distribution. Moreover, leading players like ICICI Bank and HDFC Bank have refrained from cutting rates.
DSPML strongly recommends buying into the larger stocks such as ICICI Bank (provides value at 0.8x book after adjusting for overseas impact and discounting value of subsidiaries); HDFC Bank (growth expected to sustain at +30%, that is likely to be rewarded by markets) and SBI (trades at <1.0x> We recommend HDFC Bank and BOB.