India’s battered bank stocks offer a
compelling buying opportunity, with valuations for some large
private lenders near their cheapest levels, said Amish Shah,
head of India research at BofA Global Research.
Financials hold the heaviest weight among sectors on the
benchmark Nifty 50 index, with four banks featuring in
the flagship index’s top 10 heavyweight stocks.
The Nifty Bank index has fallen 8% since the start of
the Iran war at the end of February, underperforming the
benchmark Nifty 50, which is down 4.7% over the same period.
That decline has pushed some large private banks to trade
1.5 to 2.5 standard deviations below their historical average
valuations, making them among the cheapest they have been, Shah
told Reuters in an interaction.
The decline comes amid a sharp 34% surge in crude oil prices
since the Iran war, which has threatened growth and fanned
inflation worries in Asia’s third-largest economy.
Foreign investors led the sell-off in banks, offloading a
record 606.55 billion rupees ($6.53 billion) in shares of
financial services companies in March.
“The valuations are extremely attractive,” Shah said,
adding that BofA expects a rate hike by the Reserve Bank of
India later this financial year, which would further support
banks by improving margins and strengthening their overall
earnings outlook.
India’s largest private lenders HDFC Bank and
ICICI Bank trade at a price-to-book value of 1.8 times
and 2.3 times their fiscal year 2027 earnings estimate, as per
BofA Global Research.
IT TO UNDERPERFORM
On the contrary, Shah expects information technology stocks
to continue their underperformance this year despite
the ongoing rally driven by rupee depreciation.
He said the artificial intelligence disruption story is real
and could slow IT growth in the short run as clients reassess
spending and the impact of automation on outsourcing demand.
Over the medium to long term, however, Shah said broader AI
adoption across enterprises could create a new growth runway for
the sector as companies increase spending on implementation.
The IT index has risen 3.1% since the beginning of the war
at the end of February.
BofA has an “Underweight” rating for India’s IT sector,
while it rates large private sector banks “Overweight”.