Axis Bank a buy after recent correction; prefer Canara Bank over SBI among PSBs: Pramod Amthe

Time of India

25-04-2025

Pramod Amthe
, Head of Institutional Equity Research,
InCred Capital
, says though they are overweight on
financial services
, strategic adjustments are underway, favoring companies with growth-oriented approaches and improved
liquidity
.
Axis Bank
's recent correction presents a buying opportunity, capitalizing on easing interest rates and
credit availability
. While quality stocks and safer banks initially thrived, others are expected to follow suit. Amthe favours
Canara Bank
over
State Bank of India
within the PSU banking sector.
Help us with your take on the markets because from those March lows, what a move that Indian markets have seen! But given the up move, what is the strategy that you are building at this point in time? Are we comfortably sitting in terms of the valuation and also what is your outlook when it comes to the broader end?
Pramod Amthe
: Valuation comfort is definitely there, but the concern is, we still do not seem to be bottoming out on earnings in spite of being seasonally strong quarter March. The expectations are pretty tepid. Just around 2% QoQ growth in the
Nifty 50 earnings
versus a full year and a single digit YoY growth that does not give a confidence of earnings to sustain and events of
geopolitical tensions
bring in negative surprises and test case the earnings volatility. That is not factored in fully to the extent the bounce back came in where the participation from small and midcaps have been much sharper, with almost twice the momentum as compared to the largecaps. That gives us some amount of concern.
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Many of these companies may not be as well balanced to handle international as well as domestic geopolitical tensions. So, we remain cautiously optimistic in that sense.
You just said that despite a seasonally strong quarter, Q4 earning consensus EPS expectations has been in just single digit of 8% on a year-on-year basis. There has been no respite on the EPS downgrade trend as yet. When do you see a reversal coming in and also was not the earnings downgrade already priced in when we saw that draw down?
Pramod Amthe:
It has to be seen in the context of how the macro effort by both the Government of India and RBI will play out. Our sense is we will get some handle about the outlook management commentary from the April-May for the full year and people will bake in those numbers first. Second, we need to see some revival at the end markets by both interest rate reduction and also from the income tax reduction.
So, hopefully from July-August, we should be preparing for some settlement and then a demand which should ultimately dry down and should set in the better expectations for the rest of the year. That might be a couple of more months unless and until we see some shocks like what we are currently going through. Other than that, we expect the bottoming to happen somewhere in the mid or the early part of September quarter for the EPS momentum.
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Help us with your take on the financials because the harsh reality is that going ahead we will be witnessing some rate cuts which does not bode well for the financial counters. But despite the fact it is Nifty Bank that is at all-time high levels including some of the largecap names, valuation was comforting, but how are you looking at the financial space right now? Are you bullish or cautious on the markets right now?
Pramod Amthe
: If you look at it top-down, we are overweight on the entire financial services, but we are more selective. What we are incrementally changing is clearly the central bank is more in favour of growth orientation and improving liquidity where we have upgraded Axis Bank which today's correction on the management commentary gives an opportunity to build on to the same.
We want to be able to play out this momentum on the easing interest rates and also the credit availability as compared to the recent week's performance where quality stocks have played out in a much stronger manner as the flight for safety and where the relatively safer banks have been able to showcase a better deposit mobilisation and has a possibility of credit growth. But as we go forward through the year, others will join the case and we are selectively also looking at some of the PSU banks where our preference is more for Can Bank as compared to SBI in the similar space.
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