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Executive Summary
We are bullish on Indian banks, as we see that robust credit growth and improving fundamentals to
drive earnings for the next few years. We believe current valuations of state owned banks are compel-
ling, which are trading at a negative implied growth in earnings. We expect strong growth for private
sector banks, as they ride the current economic growth wave and benefit from positive demographics.
The strong 24-month credit run continues, with advances growing at 30% CAGR during FY04-06E. The
Indian economy’s hunger for bank funding is not yet satiated, so momentum is expected to remain strong.
Compelling valuations
State owned banks valuations imply a negative growth in earnings.
Private sector banks - growth ride to continue
Current valuations of Indian banks are attractive on both absolute basis and when compared with other
countries. Indian banks still trade at a huge discount to their global peers and we expect this gap in valuations
to narrow as banks grow in size (both organically and inorganically) and move to more sustainable sources
of earnings. Union Bank, Syndicate Bank and PNB are our top picks among state owned banks and we
like ICICI Bank and Centurion Bank of Punjab the most among the private sector banks.