Analyst Call Tracker: Banking, finance firms remain Street favourites as IT pain persists

Banking, financial and some infrastructure stocks were analysts’ favorites in August due to strong credit growth, solid asset quality and a healthy investment cycle. strength has boosted their attractiveness.
Banking and financial services were the star of the first-quarter earnings season, and that optimism was reflected in Moneycontrol’s Analytical Call Tracker for the month of August.
More than half of the companies with the most optimistic or maximum improvement scores were in the BFSI (banking, financial services and insurance) sector.
On the other hand, the pessimistic scenario continues in the information technology sector, which suffered a dismal earnings season in the first quarter due to an uncertain demand environment due to recession headwinds in the west. West. . India’s largest lender, SBI, topped the chart for the number of buy orders for the month, with 47. Not without reason.
SBI posted its highest quarterly profit ever at Rs 16,884 crore for the first quarter of fiscal year 24, up 178% year-on-year, despite lower net interest income estimated at Rs 38,905 crore.
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Management remains optimistic about lending thanks to the development of small and medium enterprises, steady growth in the retail sector and the existing business lending system.
“However, with pressure on NIM (net profit margin) in an increasingly competitive environment and limited MCLR revalue margins, SBI needs to accelerate other productivity-enhancing avenues (flower income). commission and reduce operating investment costs)…”, said the national brokerage company. HDFC Securities.
In fact, net profit margin pressure has been a problem for the whole industry. As the RBI pauses rate hikes, banks are facing growing pressure to raise rates further to scare away depositors. Furthermore, since most of their loan portfolio has been revalued (more than half are linked to the external interest rate benchmark (EBLR)), analysts predict that spread compression will weigh on balance sheets of banks for at least this financial year.
“The late pass-through of the increase in the monetary policy rate[1] to deposit rates relative to lending rates, coupled with faster credit growth relative to deposits, has led to a contraction in a gap of nearly 50 basis points between lending rates and deposit rates for banks. system. This will likely lead to a decrease in net profit margin in the banking system in FY24 compared to FY23,” AnandRathi said in a note.
But the good news is that strong credit demand is supporting domestic consumption dynamics, limiting downside risks for banks. “We remain bullish on credit growth over the medium term and expect sector credit growth of 13% YoY in FY24F and FY25F respectively. “We continue to rate the banking sector positively thanks to high ROE, reasonable valuation and low earnings risk,” said analysts at offshore brokerage Nomura.
Private sector lenders HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank have all secured more than 40 bids, reflecting an industry consensus.

macro power

Infrastructure companies were the other top picks for analysts in August, with NTPC, Adani Ports, SEZ and L&T leading the way.
The government’s focus on infrastructure development, coupled with increased capital spending by state governments and the private sector, has further enhanced the short-term outlook for the industry.
“Order momentum remains strong and broad-based, while some bags are moderately high compared to last year. While public investment continues to be the main driver, some new private investment is still visible in traditional sectors as well as new age sectors (such as data centers, green energy),” said Yes Securities.
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Most of the infrastructure companies report good orders and ample trading volume. Management also made favorable forecasts.
For example, engineering and construction company L&T expects revenue to grow 12-15% and order volume to grow 10-12% in fiscal year 24.
As of Q1 FY24, consolidated revenue grew 33.6% y/y to Rs 47,882 million, driven by strong growth in infrastructure projects, up 55.5% y/y same period to Rs 22,396 million.
“The increased order volume and the company’s order outlook will support the company’s performance going forward. Strong revenue, focus on cash generation and healthy capital allocation will help the company’s bottom line, Geojit analysts said. Pain point

Indian IT professionals dominate the list of pessimists for the month.
The entire sector is grappling with the fallout from global macroeconomic challenges, as record-high interest rates weigh on Western economies and fuel recession fears. India’s five largest IT companies (by market capitalization) saw their revenue increase sequentially, at constant exchange rates, from -2.8% to 1%, a far cry from the high single- and double-digit growth was recorded last year. However, the biggest shock was that Infosys’ forecast for this year dropped sharply, from 4-7% to 1-3.5%.
However, Wipro emerged as the company with the most offerings with 18. The IT services company reported a net profit of Rs 2,870 crore for the first quarter. Although net income increased about 12% year-on-year, it fell 6.6% consecutively, largely due to declines in all key financial indicators. Net profit was also below Street’s estimate of Rs 2,976 crore.
Revenue rose 6% year-on-year to Rs 22,831 crore, but this also fell short of the estimate of Rs 23,014 crore. Sequentially, revenue increased 1.6% from the Rs 23,176 crore seen in the previous quarter. Additionally, the company forecasts revenue growth of -2% to 1% in constant currency for the July-September quarter, amid a difficult macroeconomic environment.
Morgan Stanley pointed out that Wipro’s revenue growth decelerated much faster than its peers. The company believes that until Wipro closes this gap, its discounted P/E will likely remain higher than its peers.

ICICI Securities noted that Wipro’s performance in the first quarter of fiscal year 24 fell short of estimates on all fronts. EBIT is 4% below Bloomberg estimates, backlog is weak (down 10% QoQ), and Q2 2024 revenue growth forecast also falls short of expectations.
ICICI Securities added: “Management’s comments do not provide clear information on the upcoming demand recovery.”
While national IT companies try to show courage in their winning calls by talking about their growing focus on innovative AI, analysts so far still think it’s more about bragging than content.
Another notable name on this list is Asian Paints – another victim of the increasing intensity of competition after Grasim entered the segment. “The worst profitability problems seem to be behind (for Asian Paints). However, it will face strong revenue growth in 2024. This, coupled with the increasing intensity of competition, could mean that price leverage may no longer be effective.” HDFC Securities analysts added.