Antique Stock Broking on Monday said the PSU bank trade is over, as it prefers large private banks on favorable risk-reward. The domestic brokerage said a host of favorite banking names such as HDFC Bank Ltd, ICICI Bank Ltd, Axis Bank Ltd, State Bank of India (SBI) and Karur Vysya Bank Ltd (KVB) got de-rated post the March quarter results, primarily on margin concerns. 

In a note, Antique said the trade favoring PSU banks seems to be over on macro concerns, emanating from the West Asia (WA) crisis, driving breakout government security yields, upcoming transition to ECL framework and possible wage revision provisions, from FY28. 

"The winners, in this result season, have been the turn-around banks, which either saw asset quality concerns diminish like Bandhan Bank or wherein strategic equity capital in itself/peers kept market multiples elevated despite EPS downgrades like RBL Bank  and IDFC First Bank Ltd," Antique said.

The domestic brokerage said the focus of this results season was on margins and deposit mobilisation. With market multiples pricing in the negatives of higher bond yields and deposit competition, the catalyst, going forward, for stock outperformance would be possible central bank rate actions and its impact on margins and growth. 

"Valuation of the larger private banks are at decadal lows and could swing upwards on anticipation of earnings upgrades in case of rate hikes. Taking a two year view, including possible RBI engineered repo rate hikes with OIS indicating c.100bps+ hike, our pecking order would within larger privates - HDFC Bank, ICICI Bank, Axis Bank; within PSUs- SBI; within smaller privates - Ujjivan SFB, Bandhan Bank and Federal Bank," Antique said.

The brokerage said price to book valuations of larger private banks has been hit by resetting of margin expectations coupled with FII selling. On the other hand, price to book multiples of PSUs declined from peak levels since the start of West Asia crisis due to trading losses and bleak outlook on NIMs. On the other hand PBV of smaller privates had almost reverted to pre-crisis levels, before mean reverting on concerns around specific instances of fraud in state government accounts and moderating profitability. 

"Post results, PSU banks saw a relatively higher de-rating as compared to private banks mainly due to inch up in G-Sec yields. That said, within PSU banks, Union bank and SBI have seen relatively higher price decline of 18 per cent and 11 per cent respectively despite earnings downgrades. Within large privates, Axis, ICICI have seen a higher decline in price despite marginal earnings cuts. Within smaller privates, while RBL, IDFC have seen much higher earnings cuts of 8/13 per cent, they have not seen any significant decline in price movements," Antique said.

AU SFB and Ujjivan SFB have seen a 10-16 per cent decline in price despite 2-3 per cent earnings upgrades. 

Among banks, Antique said it likes HDFC Bank due to a favorable risk reward as the stock trades at 1.3 times FY28 P/B, a similar multiple to Axis Bank and lower than some of the mid-sized banks uch as Federal Bank, KVB and City Union Bank despite better return ratios and a superior
liability franchise. 

It likes ICICI Bank that has underperformed Bank Nifty post the results and looked undervalued given the pickup in growth seen in Q4FY27, the best margin outcome in the current rate cut cycle with FY26 exit spreads being only 2bps lower vs pre-rate cut levels. 

Amongst the smaller banks, Antique likes Federal Bank due to return on asset (RoA) improvement levers and better than expected execution on its liability franchise improvement. 

"Bandhan Bank is also expected to report improvement in return ratios, in FY27, and looks better placed from valuation perspective. We also like Ujjivan as a play on the MFI cycle picking up. We believe it has a better underwriting as compared to peers which was visible in
the last cycle where it saw a relative faster normalization of asset quality vs. other MFI heavy names," Antique Securities. 

Among other bank stocks, Antique said Indian Bank and Bank of Maharashtra (BoM) are two
other stocks wherein the operational numbers have been good and recent correction has made its P/BV more palatable.