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Nomura Prefers Top Private Banks, Predicts 17% Core PPOP Growth in Q2
- •Nomura forecasts a 17% year-on-year growth in core pre-provision operating profit for covered banks in the September quarter, driven by steady net interest income and controlled costs.
- •Large private banks are favored over PSU lenders, with HDFC Bank, Kotak Mahindra Bank, and ICICI Bank named as top picks.
- •Private banks are projected to report an 18% year-on-year core PPOP growth, while PSU banks are expected to see a 5% quarter-on-quarter decline.
- •Hardened G-sec yields are expected to weigh on treasury income, impacting PSU banks more heavily while large private banks remain largely unaffected.
- •FCNR(B) inflows and liquidity have been utilized to retire high-cost deposits, creating a cost-of-funds tailwind for the upcoming half-year.
Key Questions Answered
Nomura expects banks under its coverage to report a 17% year-on-year growth in core pre-provision operating profit (PPOP) in the September quarter. Private banks are projected to lead with an 18% year-on-year growth, while PSU banks are expected to post a 16% year-on-year growth alongside a 5% quarter-on-quarter decline.
Nomura's top stock picks among large private banks are HDFC Bank, Kotak Mahindra Bank, and ICICI Bank. For mid-sized lenders, the brokerage prefers IDFC First Bank and IndusInd Bank.
Nomura attributes the 2-10 basis points quarter-on-quarter NIM compression at large private banks to a lower CASA ratio and growth in the lower-margin international book that funds leveraged FCNR(B) deposits. The brokerage emphasized that this reflects a ratio dilution rather than an earnings dilution.
