Bank of America maintains its constructive outlook on India's banking sector, with HDFC Bank and ICICI Bank continuing as top picks despite ongoing concerns about potential interest rate cuts. The brokerage expects the sector to deliver largely stable performance in the December quarter, supported by improving loan growth momentum.

Banking Sector Q3 Performance Outlook

For the December quarter, BofA anticipates a balanced performance across the banking sector. While healthy loan growth is expected to provide support, this will be partially offset by range-bound net interest margins, lower treasury gains, and elevated credit costs for banks with significant microfinance exposure.

Loan growth across the banking system has shown continued improvement, tracking at approximately 4.00% quarter-on-quarter and 12.00% year-on-year as of mid-December. Most banks are expected to report loan growth in the 3-5% range for the third quarter, which remains a key positive driver for the sector.

Margin and Cost Dynamics

Net interest margins are expected to remain broadly stable for large private sector banks, with a mixed trend likely as loan repricing benefits offset deposit rate cuts and CRR adjustments. Public sector banks may experience a modest 3-5 basis point impact from recent rate cuts, while mid-sized banks are expected to report marginal sequential improvement in NIMs.

Operating expenses are anticipated to increase sequentially due to festive season offers and business investments, though year-on-year cost growth is expected to remain controlled. Deposit growth continues to lag loan growth, intensifying competition for liabilities and creating structural constraints.

Asset Quality and Credit Costs

BofA expects gradual recovery in asset quality to continue. Unsecured portfolio trends are likely to improve further, though normalization in the microfinance segment remains several quarters away. Mid-sized banks with higher MFI exposure may report elevated slippages in the December quarter, while large private banks and public sector banks are expected to see some impact from agricultural seasonality.

Top Stock Picks and Valuations

Within this sector backdrop, BofA continues to favor large private banks, maintaining Buy ratings on both ICICI Bank and HDFC Bank based on attractive valuations and strong fundamentals.

ICICI Bank is viewed as attractively valued with strong earnings visibility, expected to report improved loan growth compared to the previous quarter along with stable NIMs and credit costs. However, uncertainty around the bank's CEO extension remains a near-term concern for investors.

For HDFC Bank, investor attention centers on the sustainability of loan growth, particularly given relatively weak deposit growth in the current fiscal year. Commentary around the NIM trajectory will be closely monitored, as sustained improvement in loan growth momentum is considered key to driving the next phase of stock re-rating.

HDFC Bank has executed a substantial block trade on BSE involving 8.1 million shares at ₹948 per share, marking one of the significant institutional trading activities in the banking sector. This latest transaction demonstrates continued strong institutional interest in the banking stock.

Latest Block Trade Details

The recent BSE block trade represents a significant scale of institutional activity:

Comparison with Previous Activity

This transaction shows substantial increase in institutional activity compared to earlier trades:

Market Significance

Block trades represent large-volume transactions typically executed by institutional investors, mutual funds, or other significant market participants. These trades are conducted outside the regular market mechanism to prevent substantial price movements that could occur with such large volumes.

The execution price of ₹948.00 per share reflects current market valuation and demonstrates institutional confidence in the banking sector. The significant increase in transaction volume indicates heightened institutional activity and portfolio movements.

Trading Mechanism Impact

The substantial volume of over 8.1 million shares represents considerable institutional activity and demonstrates the strong liquidity available in HDFC Bank's stock. Such large-scale transactions serve as important mechanisms for institutional investors to execute substantial trades without creating significant market disruption.

This level of block trading activity indicates robust institutional participation and reflects the stock's appeal among large investors in the banking sector.