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MOSL: FINANCIALS-Decoding FY19 – The turning point! Corporate banks consensus earnings CAGR (FY19-21) at 39%

Financials: Decoding FY19 – The turning point! Corporate banks consensus earnings CAGR (FY19-21) at 39%

 

FY19 was an eventful year for the BFSI space. The year began with the impact of the RBI’s revised circular on the recognition of stressed assets, which led to a significant uptick in bad loans and credit cost. The sharp deterioration in asset quality/divergence performance in the prior year was also somewhere responsible for the multiple management changes at private banks. Further, the liquidity crisis post the IL&FS default dented overall sentiment, and later emerged as a full-blown crisis for lenders (mainly for NBFCs), the ripple effects of which are still being felt. However, as we move forward, the impact of these issues seems to be subsiding, and the operating environment is becoming conducive for banks (credit growth and credit cost). 

While FY20 appears optimistic, we look back at FY19 to assess the trends in EPS, consensus ratings, price performance, etc., for the Indian banking and insurance space and follow it up with our top sector ideas. Our key observations: 

• FY19 – the year of corporate banks revival: In FY19, the Nifty Bank index delivered a return of ~25% v/s 17% returns by the Sensex. Among private banks, AXSB delivered the highest return of 52% in the fiscal, followed by ICICIBC (44%). Among PSU banks, SBIN delivered the highest return of 28% over the same period. Among the key stocks under our coverage, SIB/HDFCLIFE declined the most at 27.6%/16.7%, followed by J&K Bank and IPRU. Among PSU banks, BOB declined the most by 9.6%.