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January 15, 2001 		Feedback  
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CSFB upgrades Indian banking sector

Credit Suisse First Boston has raised its rating of the Indian banking sector to overweight from buy, with HDFC Bank its top individual pick.

Despite a poor macroeconomic environment, some banking sector shares were attractively valued, the brokerage said in a report dated January 8.

And some key variables favoured acceleration in the economy -- lower interest rates, lower oil prices and an overall improvement in agricultural production, the report said.

CSFB economist P K Basu forecast gross domestic produce -- the total value of all goods and services produced within a country -- will increase 7 per cent, and industrial production by 8 per cent in the year beginning next April.

For the current year, the central bank estimates GDP will grow 6.0 to 6.5 per cent; and industrial output expanded by 6.0 per cent in the past April-November period.

Private sector HDFC Bank, housing mortgage firm Housing Development and Finance Corporation and financial services leader ICICI were attractive because of their technology-driven growth strategy, the report said.

India's largest commercial bank, the state-run State Bank of India, was also a good play on the basis of the restructuring of public-sector banks.

SBI's staff is to be cut by around 10-15 per cent through a recently announced employee separation scheme, which could cause a 5 percentage point fall in the bank's cost-to-income ratio and a 3-4 percentage point increase in its return on equity.

"The focus in 2001 is likely to be on the ability of the government to restructure state-owned banks," CSFB said and put a sell recommendation on state-run Bank of Baroda and Bank of India, private sector ICICI Bank and Industrial Development Bank of India, which lends only to corporations and institutions.

It set a one-year price target of Rs 252 for SBI, while setting a price target of Rs 284 for HDFC Bank.

The report also put a buy recommendation on state-owned Corporation Bank.

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