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20 July,2025

Which Sector/Stock will you buy?

One of the key decision in selecting a stock is which stock will you buy from the entire universe available in BSE/NSE arena. I am into “technical” analysis which helps in making this decision. There is also population which believes in analyzing the “Fundamentals”

Should there be a tussle between the two, lets decode. PE is nothing but Price/Earning. Price is ever evolving and gets discovered through buyers and sellers. Earnings is the component which is studied by Fundamental analysts. Various metrics like PAT, ROCE, ROE etc. are studied and forward metrics arrived at. Technical analysts incorporate this data into the charts which is a summation of all buyers/sellers and their analysis of the Fundamentals.

Let us look at Banking Sector

Moving ahead, let us analyse the Banking Stocks which have delivered their Q1 Results last week.

Few key metrics and their definition to better understand the analysis –

1. NII – Net Interest Income (NII) is the difference between the interest earned by a bank on its loans, investments, and other assets, and the interest paid on its deposits and borrowings. or banks. NII represents the primary source of stable, recurring income. The bank’s ability to earn more interest on loans than it pays on deposits drives profitability. Formula: NII=Interest Earned−Interest Paid
2. Net Interest Margin (NIM) is a key profitability metric for banks, showing how effectively a bank is using its interest-bearing assets (such as loans and investments) to generate income relative to its cost of funds (interest paid on deposits and borrowings) Formula: NIM = NII/Avg Assets
3. What Are Average Earning Assets? Average Earning Assets refer to the average value of a bank’s assets that generate interest income over a specific period (e.g., quarterly or annually). These assets are typically used to generate the bank’s Net Interest Income (NII)
4. Other Income – Other Income refers to income generated by a bank from non-lending activities, and is typically separate from the core interest income (NII). It includes a variety of earnings sources such as Fee Based Income, Treasury Income, Investment and Forex income etc.

Bank	PAT (₹ Cr)	NII (₹ Cr)	Other Income (₹ Cr)	NII as % of PAT	Other Income as % of PAT
Yes Bank	₹801	₹2,371	₹1,752	296%	219%
HDFC Bank	₹18,155	₹31,438	₹10,000	173%	55%
ICICI Bank	₹12,768	₹21,635	₹1,241	169%	9.7%
Axis Bank	₹5,806	₹13,560	₹0	234%	0%
RBL Bank	₹200	₹1,481	₹1,069	741%	534%

Let us look at YES Bank, which is talk of the town lately.

Where Yes Bank Relies Heavily:

1. Treasury & Non-Interest Income (Other Income – ₹1,752 Cr)
   • Contributes 219% of PAT, meaning without other income, PAT would be in negative or marginally profitable.
   • This includes fee income, forex gains, and investment trading.
   • Indicates dependency on market-driven and volatile income streams.

Key Weaknesses / Areas of Concern:

1. Low NIM (2.5%)
   • This is the lowest among peers, suggesting thin spreads between loan interest earned and deposit interest paid.
   • Implies that lending operations aren’t highly profitable — likely due to legacy bad loans, high cost of funds, or pricing pressure.
2. Weak Deposit Growth (+4.1%)
   • Compared to HDFC (+16.2%) or Bandhan (+16%), Yes Bank’s slow deposit growth limits its ability to lend aggressively.
   • This affects both scale and margin expansion (as cheaper deposits reduce funding cost).

What is Good:

1. Low Gross NPA (1.6%)
2. Provisions are just 35% of PAT, the lowest provisioning burden among peers.
3. PAT rose 59% YoY, reflecting a turnaround in earnings momentum

Let us look at Charts

Bank Nifty – Represents major Banking Stocks. It is at all time high

HDFC – Similar to Banknifty, at all time high

ICICI – Again at all time high

Axis Bank – Nearer to All time high

YES Bank – 40% down from last year, 95% down from ATH

Key Highlights

Any stock to perform (Price to move up), needs either a strong macro economic environment (like Railways and defence moved very well in last year), earnings surprise (which can come through any exceptional order book or say pharma company getting approval for a molecule. The catalyst is needed to make the price move up and rerating of PE (Sector/Company) happens.

Finally, the question is to be answered by oneself, “Which stock will you buy”

Happy Learning!

Seek, Learn, Master