While arguing that the proverbial Goldilocks period is over for the financial sector, investment banker Goldman Sachs has issued a sell call on retail favourite YES Bank and downgraded two other banks – SBI and ICICI Bank. But when it comes to HDFC Bank, it sees a 33% upside.
Goldman has downgraded SBI to a neutral rating with a target price of Rs 741, ICICI Bank to neutral with a target price of Rs 1,068, and YES Bank to sell with a target price of Rs 16. In the meantime, it has upgraded underperformers Bajaj Finance to neutral from sell with a target price of Rs 6,815 and retained a buy on HDFC Bank with a target price of Rs 1915.
It has cited three major headwinds for financials – rising pressure on the cost of funds due to structural challenges in the funding environment, growing concerns, on rising consumer leverage, and pressure on operating costs.
“We are cutting earnings estimates across our coverage universe by 5%/2% on average over FY25/26 and are below VA consensus on aggregate PAT by 2%/1% for FY25/26. However, for select names we are lower by mid-to-high single digits,” Goldman said.
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Among private banks, it has buy calls on HDFC Bank, Kotak Bank, Axis Bank, IndusInd Bank, and Bandhan Bank.
“Given most of the large and mid-sized private banks are trading in a close valuation band, we believe visibility on loan growth, PPOP-ROA, and credit quality will play an important role. We noticed that the asset quality worsened for many private banks on account of normalisation of the credit cycle. However, given that select private banks have aggressively grown their unsecured loans and witnessed an expansion of margins, we believe that as consumer lending goes through a slowdown, unit economics, and growth could be a challenge,” Goldman said.
YES Bank shares, which have rallied nearly 60% in 6 months, were trading flat at Rs 27.11 on the BSE. Similarly, SBI was trading near the flatline at Rs 768 and ICICI Bank at Rs 1,061 while HDFC Bank was trading marginally higher at Rs 1,427 on BSE.
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