According to Bernstein analysts, it is now opportune to shift focus back to private banks in India, after a period where public sector banks (PSBs) outperformed. Over the last three years, PSBs demonstrated superior earnings growth and narrowed the growth gap with private sector banks (PVBs). However, the outlook for PSBs appears less promising moving forward.
PSBs are expected to encounter challenges such as weaker deposit growth, despite aggressive pricing strategies, and significantly lower liquidity buffers compared to what lower Loan to Deposit Ratios (LDRs) might indicate. Consequently, PSBs are anticipated to exhibit weaker earnings growth compared to PVBs in the foreseeable future.
In light of these factors, Bernstein recommends investors to switch back to PVBs. Additionally, they have downgraded SBI to “Market-Perform,” although they have raised the target price to Rs 780. This decision is based on the expectation that SBI’s improved growth prospects from its willingness to raise capital are already fully priced in.
