Goldman Sachs Forecasts Strong Growth for Indian Banking Stocks
Goldman Sachs predicts "healthy" growth in new lending at three major Indian banks, which could result in significant upside for these stocks. The investment bank identifies Kotak Mahindra Bank, State Bank of India, and HDFC Bank as its "Top Buys," expecting the decline in profit margins across the sector to stabilize in the near future. While Indian bank stocks have outperformed the MSCI India index over the past year, they have underperformed in the last three to six months. Goldman Sachs highlights that valuation multiples for Indian banks have declined the most despite earnings per share (EPS) upgrades.
Factors Driving the Derating
Concerns surrounding contracting margins and moderating loan growth have contributed to the derating of Indian banks. Despite posting double-digit EPS growth rates, large-cap banks like HDFC Bank and ICICI Bank, listed in the United States, have experienced a significant decline in their valuation multiples since early 2021. However, Goldman Sachs anticipates operating profit to bottom out in the December quarter of 2023 as margins and growth rates stabilize.
Optimistic Outlook on India's Economy
Goldman Sachs' positive stance on Indian banks aligns with its outlook on India's economy. The investment bank forecasts a real GDP growth rate of 6.5% over the next three years, which is expected to drive lending at major banks organically. The analysts at Goldman Sachs anticipate healthy loan growth, driven by demand for commercial retail, working capital loans, and a gradual increase in demand for capex credit.
Goldman Sachs provides specific price targets and upsides for the recommended Indian banks:
- Kotak Mahindra Bank: Price target of 2,624 Indian rupees ($31.6) with a 49% upside. The bank is expected to achieve a compound annual growth rate (CAGR) of 19% in operating profit over FY23-26.
- State Bank of India: Price target of 748 Indian rupees with a 25% upside. SBI has demonstrated consistent improvement in operating performance and strong asset quality trends, even amid the challenges of COVID-19.
- HDFC Bank: Price target of 2,051 Indian rupees with a 34% upside. The bank is forecasted to deliver sector-leading earnings growth of 17% in FY23-26, along with superior return ratios.
In conclusion, Goldman Sachs anticipates strong growth in lending for major Indian banks, presenting significant upside potential for investors. The investment bank's positive outlook is supported by its expectations for India's economic growth and the specific strengths and performance of the recommended banks.
Indian Banking Stocks Poised for Growth, Says Goldman Sachs
Goldman Sachs projects a significant increase in new lending for three major Indian banks, which could lead to substantial growth for these stocks. The investment bank's top picks include Kotak Mahindra Bank, State Bank of India, and HDFC Bank. This prediction comes with an expectation that the recent decline in profit margins across the sector will soon stabilize.
The Impact of Derating
The derating of Indian banks has been driven by concerns over contracting margins and moderating loan growth. Despite this, Goldman Sachs anticipates a recovery, with operating profit expected to bottom out in the December quarter of 2023. This could present opportunities for new businesses looking to enter the Indian banking sector, as margins and growth rates stabilize.
India's Economic Outlook
Goldman Sachs' bullish stance on Indian banks aligns with its positive outlook on India's economy. The investment bank forecasts a real GDP growth rate of 6.5% over the next three years. This growth is expected to organically drive lending at major banks, potentially creating a conducive environment for new businesses.
Specific Bank Forecasts
Goldman Sachs has provided specific price targets and upsides for the recommended Indian banks. These predictions could guide new businesses in understanding the potential growth trajectory of these banks and the overall banking sector.
In short, Goldman Sachs' prediction of strong growth in lending for major Indian banks could present significant opportunities for new businesses. This outlook, supported by expectations for India's economic growth, could be a valuable guide for businesses planning to enter the Indian banking sector.