JP Morgan picked ICICI Bank and State Bank of India among its key picks in the financial sector.

What The Brokerage Said: The rate cuts will likely be passed on over 18 months even though it will impact net interest margin (NIM) in the near term, the brokerage said. 

According to the brokerage, regulatory tightening will prioritise stability over growth. 

The banks' earnings are likely to remain under pressure on slower growth in the near term, JP Morgan added. 

Even non-banking financial companies (NBFC) are facing concerns despite being beneficiaries of the rate cut, it added. NBFCs face concerns about spread increasing due to tighter liquidity and banking lending slowing down. 

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The interest spread is the difference between the interest financial institutions receive from loans and the rate paid for deposits. 

The U.S. Federal Reserve slashed the interest rates by 50 basis points in the September meeting. Reserve Bank of India’s Monetary Policy Committee is scheduled to meet from October 7 to 9.

Key Picks: Key picks for JP Morgan include ICICI Bank, State Bank of India, Shriram Finance, Cholamandalam Investment and Finance Company, LIC Housing Finance, Kotak Mahindra Bank and HDFC Asset Management Company. 

Price Action: Shares of ICICI Bank were up 0.28% to ₹1,276.55 on Tuesday morning. 

Shares of SBI were up 0.70% to ₹793.40.

Shares of Kotak Mahindra Bank were up 0.56% to ₹1,864.35.

Shares of LIC Housing Finance were up 0.68% to ₹666.95. 

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