Q3 credit growth signals economic pickup, still prefer larger banks like Axis, Kotak, ICICI, SBI: Sandip Sabharwal

Economic Outlook - Double-digit loan growth across most large banks indicates rising economic activity after a prolonged phase of single-digit growth, suggesting an economic pickup [1][13] - System-wide gross NPAs have fallen to multi-year lows, strengthening the investment case for large banks [5][13] Banking Sector - Axis Bank and Kotak Mahindra Bank reported strong Q3 updates, while HDFC Bank showed stable but unspectacular growth; Axis is considered attractive from a valuation standpoint [2][13] - Preference remains with large banks over smaller lenders due to historical asset-quality risks associated with aggressive lending by smaller institutions [6][13] - Preferred banking holdings include ICICI Bank, Axis Bank, State Bank of India, and IDFC First Bank, which may benefit from lower interest rates [13] Consumption and Retail - Caution is advised on high-valuation retail stocks, with expectations for Trent being high, making sustained 20%+ growth difficult [7][13] - FMCG companies like Marico and Britannia have performed well during the consumption slowdown, while stocks such as Dabur and Godrej Consumer Products could emerge as strong performers in the next one to two years [8][13] FMCG Sector - ITC faces challenges due to a sharp excise duty hike on cigarettes, which could hurt volumes and presents risks from illicit cigarette inflows; its non-tobacco FMCG business has yet to achieve meaningful profitability [9][13] Power Sector - Preference is for transmission, transformer, and power equipment companies over pure financiers or generators due to long-term risks in solar project financing [10][11][13] Automotive Sector - Market leaders in the automotive sector continue to outperform, making turnaround bets less attractive; Mahindra & Mahindra is highlighted as a strong position [12][14] - Commercial vehicles are seen as having better prospects than passenger vehicles within Tata Motors [14] Staples Sector - A gradual recovery in staples is expected after two to three years of weak demand, with potential for double-digit returns if consumer demand picks up and inflation eases [12][14]