The financial sector will remain fairly weak in 2020 due to slow loan growth, elevated no performing loans, and accelerated market share concentration among the big lenders, according to Morgan Stanley.
The financial services company added that sectors like telecom and real estate could add some large corporate stress on the banks moving forward.
However, Morgan Stanley said that the large banks are likely to continue to gain share. It has advised investors to stick to the large banks with low SME exposure like ICICI Bank and HDFC Bank because these two are expected to report strong earnings.
"Large banks continue to gain share — deposits had been a constraint, but their share in deposits has increased significantly. This implies that they could keep gaining substantial loan share in FY21 as well. This should drive continued strength in NIMs."
Small and medium enterprises (SME) will see higher NPLs over the next few quarters due to the weak economy. Since state-owned banks have higher exposure to SME, MS expects high NPL ratios in their earnings. Smaller private banks are also likely to show higher NPL ratios if the economy doesn’t pick up over the next few quarters, the report added.
The brokerage maintains 'underweight' on RBL Bank, IDFC First, Federal Bank and PSBs (excl. SBI), while in non-banks, Indiabulls Housing Finance and PNB Housing Finance will remain under pressure.
2019 remained a roller-coaster ride for the Indian market. Weak GDP data, high inflation, rising fiscal deficit and a slew of other negative data points remained a stress point for both, economy and stock market.