Nomura Identifies Risks for PSU Bank Stocks, Favors Axis and ICICI Banks
Nomura flags 4 risks for PSU bank stocks; prefers Axis Bank, ICICI Bank
Business Standard
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Nomura has expressed a bullish outlook on private banks over public sector undertaking (PSU) banks, citing limited upside for PSU banks after a year of strong performance. The brokerage identifies four key risks for PSU banks while recommending Axis Bank and ICICI Bank as top picks due to their attractive valuations and earnings quality.
- 01Nomura favors private banks over PSU banks due to limited upside for PSU stocks.
- 02PSU banks have outperformed in loan growth but face sustainability challenges.
- 03Earnings quality for PSU banks is weaker compared to private banks.
- 04Private banks are trading at lower valuations despite better earnings visibility.
- 05Nomura recommends Axis Bank, ICICI Bank, and Kotak Mahindra Bank as top investment picks.
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Nomura has shifted its focus from public sector undertaking (PSU) banks to private banks, citing a lack of further upside for PSU stocks after a significant re-rating over the past year. The brokerage notes that PSU banks have outperformed in loan growth, achieving a compound annual growth rate (CAGR) of 14.4% from September 2024 to December 2025, compared to the industry average of 12.5%. However, this growth has not been matched by deposit increases, leading to concerns about sustainability. Nomura outlines four risks for PSU banks, including weaker earnings quality and higher leverage, which could amplify downside risks. In contrast, private banks, trading at around 2.0x price-to-book value, are viewed as undervalued with stronger earnings visibility. Nomura recommends Axis Bank, ICICI Bank, and Kotak Mahindra Bank as top picks, with target prices reflecting potential upsides of 12.5% to 17.2%.
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Investors in bank stocks may need to reassess their portfolios, as the shift in focus from PSU to private banks could influence market dynamics and investment strategies.
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