Suresh Ganapathy, Analyst (Banking sector), Macquarie Capital Securities talks to Krishna Merchant on today's rally in the banking stocks and outlook going ahead.
 
Most banking stocks are buzzing in trade today with ICICI Bank surging over 3%. What is your outlook for the banking pack?
 
I have given an outperform rating on ICICI Bank with a target of Rs 1,100. Clearly, the growth is picking up, and with provisions down on a quarter-on-quarter basis, which is the biggest positive for the bank.
 
What about PSU banks such as State Bank of India, Punjab National Bank?
 
PNB numbers were good, except for their asset quality margins. For State Bank of India, I feel that there could be some possibility of asset quality surprises on the downside.
 
Union Bank and Punjab National Bank revised their lending rate by 75 bps after RBI raised rates last week. Do you think other banks might follow?
 
I do not expect lending rates to go up as credit growth is still not broad based. It still is only concentrated in few sectors such as telecom, infra and mortgages.
 
BSE banking index is down nearly 8% since January 2008, while Sensex is down 15%. However, SBI and HDFC Bank are currently trading at lifetime highs. What is your outlook on these two?
 
Valuation wise, state owned banks are looking expensive relatively to their historical value. I expect some downside in SBI.
 
As regards HDFC Bank, I have given an outperform rating with target of Rs 2,570 based on 30% earnings growth and 20% book value.
 
What is your outlook retail and corporate loan growth?
 
Going ahead, bigger driver of growth will be corporate loans. On the retail front, mortgage and four-wheeler loans are expected to do well.