Asset Quality Takes Center Stage To Dictate Bank Stocks' Performance, Says Kunal Shah Of Citi Research

It's likely that markets will favour banks with better assets. The entire verbatim has shifted away from margin and growth towards asset quality, said Kunal Shah, director, India Bank Financials, Citi Research.

"We have ICICI Bank and HDFC Bank as a part of our top picks."

Till now, market participants were looking at the growth trajectory of a bank. Growth and margins have largely factored in the estimates so the focus is now on asset quality. That's the reason the banks that are doing relatively better on asset quality side have outperformed others which have witnessed slippage and credit costs, Shah said in an interview with NDTV Profit.

Asset quality has taken a center stage. If market participants observe in the product segments, asset quality has been more important in terms of unsecured lending. Within unsecured, it has been towards microfinance and credit card in particular. Wherever the exposure has been higher in these two segments, banks report higher stress on asset quality, he said.

The higher flow in the above mentioned product segments could spill over in third quarter as well. Most managements of lenders indicated that a change in the situation is not expected soon. The second half could be better but that would be seen in the fourth quarter. The fact that there'll be a spillover in the third quarter, there's pressure on the stocks, Shah said.