Review Of Banking Stocks After Q1FY15 By Nirmal Bang

Q1FY15 performance analysis

The overall performance of the banking sector as a whole in Q1FY15 was not encouraging. However, most of it was already expected and therefore there was no negative surprise for the sector. While most of the private banks (barring few negative surprises) reported satisfactory performance, PSU banks continued to disappoint with no meaningful improvement in the bottom line performance. One noteworthy point which needs to be mentioned here is that the stress asset formation showed some respite as compared to levels seen in Q3 and Q4FY14. The sustained improvement in asset quality will be the key moniterable for the banking industry in the coming quarters.

Expectations/hopes of cyclical recovery in economic environment and implementation of reforms/ measures taken by the new government which is likely to ease the stress/concerns prevailing in the overall sector has resulted in rally in the banking sector. We have seen Bank Nifty has generated returns of 36.84% vs 24.34% returns generated by Sensex and 24.8% returns generated by Nifty since Jan 2014. Most of the banks are now trading above 2 year average P/BV.

Driven by positive commentary by most management, we saw that most of the PSU banks did not react sharply or had limited impact on stock price despite reporting lower than expected numbers on hopes that worst is getting over for the sector and things can only improve from here on.

Download Q1FY15 Result Review- BANKING