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COVID-19: JP Morgan suggests how to invest in banking stocks amid global crisis

Updated : March 30, 2020 04:40 PM IST

JP Morgan says the current crisis could last longer and affect the asset quality and growth across sectors.

Avoid large exposures in real estate/mid corporate sector given asset quality landmines there, according to the brokerage..

Banks are the foundation of any economy, and in the times of financial crisis they are the first ones to take the hit. Same is the in India after the coronavirus crises began in March. The sector took a significant hit as soon as the national lockdown was announced; most banking stocks slipped about 50 percent from their highs. According to JP Morgan, this could last longer and affect the asset quality and growth across sectors.

The brokerage said banks valuations across the board have become cheap and in many cases have taken 2008 floors. Quality stocks have also been derated. In case collection conditions normalise, specialist franchise like Bandhan could be interesting for the long-term investors, it said.

For those facing difficulty in selecting banking stocks should look at the ones with a combination of deep funding, high provision coverage, limited issues in asset quality and strong capital ratios, suggests JP Morgan.

However, large exposures in real estate/mid corporate sector should be best avoided given asset quality landmines there, according to the brokerage.

Furthermore, it has cut price targets and EPS across the board, however 3 banking stocks that look good despite price cuts are HDFC Bank, Kotak Mahindra Bank and ICICI Bank.

banks

The investment bank also suggested "to find out the best banking stocks in the sector, one can go by track recording companies over past down cycles, and look for the ones that managed headwinds like 2008 financial crisis, 2013 taper tantrum, 2016 demonetisation and 2018 liquidity problems".

The report also highlighted that lower growth across the sector will continue till June and a return to normalcy will not be anytime before FY22.