**[investwise]** Citibank: Expect A Sector Sell-off In PSU Banks, As Funds Shift Allocation to Stanchart IDRs

 

Citibank: To Play India, Go For Stanchart IDR's Low Earnings Markets: Mexico and India — Mexico screens as having the lowest bank earnings in our sample. A macro recovery in Mexico should support bank earnings and penetration growth. We view BBVA as a good value play on Mexican growth. India also looks an attractive growth opportunity. Standard Chartered is a way to play growth in India, as well as in Korea and other emerging markets. Investment Recommendations Using our market value penetration framework, decomposed into earnings and valuation, we make the following investment comments: 1. Investors looking for low-PE banking systems should focus on Turkey, Korea, and possibly Russia. 2. For low earnings relative to peers, Mexico screens best, as does India relative to other BRICs. 3. China and Brazil have large market values but the main risk is one of earnings sustainability not a valuation bubble. Low Earnings markets – India Among larger emerging markets, India has a relatively low bank earnings penetration, behind Russia and half the level of Brazil and almost one-third the level of China. India has a similar level of ROA as China but a much lower lending penetration. India's lending penetration is similar to Brazil and Russia, but its margins are much lower. On a long-term view, the small size of India's banking market (c15% of GDP) versus China (c30%) or Brazil (c25%) creates upside potential. However, in the near-term, our Indian banks analysts, Manish Chowdhary and Aditya Narain, caution that rising interest rates could be a headwind for Indian bank stocks, especially public sector banks. One play on Indian growth, while hedging short-term rate rising fears, could be Standard Chartered. SCB is a CIB-focused franchise in India, where it earned $1 billion in 2009 pre-tax profits (c20% of group profits). SCB also provides gearing to a banking earnings recovery in Korea (SCB profits should treble from currently depressed levels). Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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