While the banking sector witnessed a moderation in the April-June quarter earnings at around 10% with most banks reporting contraction in their margins and credit cost going up, brokerages remain positive on this sector. ETMarkets brings 12 stocks with buy ratings and heavyweights HDFC Bank, ICICI Bank and State Bank of India (SBI) remain the most recommended picks.
Though Bank of Baroda, Axis Bank and Indian Bank beat them on the potential upside front.
HDFC Bank has a buy recommendation from brokerages including Yes Securities, Motilal Oswal, Kotak Institutional Equities, Emkay, Nuvama and ICICI Securities. Emkay has the most ambitious target of Rs 2,000 which is a 23% upside over the Thursday closing price of Rs 1,628.
A strong franchise augurs well for India’s largest private lender.
This stock has declined by nearly 1% in the past one month and its one-year gains stand at 3%.
ICICI Bank stock has a thumbs-up from Morgan Stanley, Macquarie, Yes Securities, Kotak Equities, Nuvama and Axis Securities. IIFL has an ‘Add’ rating on the counter. Morgan Stanley’s target of Rs 1,500 is highest among the mentioned brokerages which is a 26% upside over previous closing price of Rs 1,191.
Nuvama said that ICICI Bank turned in strong earnings and outperformed on three key concerns plaguing its peers in Q1FY25: asset quality, LDR (loan-to-deposit ratio) and net interest margins (NIMs).
ICICI Bank has corrected by 4% in the last one month though its 1-year gains stand at 25% almost in line with broader Nifty.
On state-run SBI, Jefferies, Nomura, Nuvama, Kotak Equities, BNP Paribas and IIFL have vested their interest. Yes Securities has the highest price target on this counter at Rs 1,035, a 26% growth from the last trading price of Rs 820 on Wednesday.
SBI’s loan-to-deposit ratio (LDR) at 69%, is still well below the 79% for the banking sector, Nomura said in a note, adding that the asset quality was stable as SBI has the lowest retail slippages and NPL’s among large banks.
Meanwhile BNP Paribas sees SBI to an “extent” remaining a proxy to India’s broader credit market – representing its good, bad, and ugly. In its views, if credit growth picks up and general capital market risk aversion reduces, SBI should get re-rated dramatically.
While SBI has rallied 44% over a 1-year period, its fall of 7% is the worst among the three of them.
Kotak Mahindra Bank has an upside up to 17% over the Wednesday closing price of Rs 1,821 and a price target of Rs 2,124. It has a buy rating from Yes Securities, Axis Securities and LKP Securities.
Private lender Axis Bank has a buy view from Yes Securities, Bernstein, Nuvama and Nomura. Yes has the most bullish target of Rs 1,550 which is a 32% upside over last closing price of Rs 1,170.
The other stocks with a buy view include Bank of Baroda (Yes Securities, Prabhudas Lilladher, ICICI Securities and Axis Securities) and IDFC First Bank (Anand Rathi, Yes Securities).
AU Small Finance Bank is a recommendation by Axis Securities which has estimated a 17% upside and a target price of Rs 725.
Among brokerages Yes Securities has the maximum recommendations with 9 as ‘Buys’ and 5 as ‘Adds’.
Apart from Axis Bank, BoB, ICICI Bank, SBI and HDFC Bank, it has given buy on CSB Bank (TP: Rs 415), City Union Bank (TP: Rs 210), Federal Bank (TP: Rs 245) and Indian Bank (TP: Rs 715). Its ‘Add’ recommendations are on IDFC Bank (TP: Rs 85), IndusInd Bank (TP: Rs 1,675), Kotak Mahindra Bank (TP: 2075), RBL Bank (TP: Rs 285), DCB Bank (TP: Rs 150).
Its positive view on the banking segment rests on sequential evolution of asset quality which continues to differentiate banks as gross slippages remained on the lower side for top banks like SBI, HDFC Bank, Federal Bank and BOB.
Banks’ performance for over a month has been lackluster. The 12-stock Nifty Bank index has fallen by 2.5% while the Nifty PSU Bank has declined by 3.3% compared to Nifty50 which has moved 1.1% up.
B&K Securities called Q1FY25 a cyclically weak quarter with a lower credit growth pace at 13.9% YoY from 15% YoY in 4QFY24. It noted the narrowing gap in credit growth rates between private and public banks.
“The banking group posted credit growth rates at 16.1% & 13.8% YoY respectively. The sectoral retail credit composition improved further, and within the retail segment, housing loans growth rate was higher,” this brokerage said in a note.
On the outlook, Nuvama sees margins to stabilise at low levels in FY25 after witnessing a steep fall in margins in FY24. “Early signs of the same are visible in the BFSI banking sector spreads, where a large part of the deceleration seems to be behind,” brokerage note said.
Gross slippages were on the lower side for Federal Bank, SBI, BoB and HDFC Bank which is a positive for these banks, said Yes Securities as it pointed to elevated levels in DCB, RBL and IDFC First Bank.
Amid negatives, banks could see their credit growth slow down and early signs of the same are visible, according to Nuvama.
RBL and HDFC Bank were outliers with sequential expansion in NIM as most banks under Yes Sec’s coverage banks saw contraction.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
