Bulls Tango In Banks: ICICI Bank, PNB, BOI Hit New 1-Year Highs; Which PSU And Private Bank Share To Buy?

Banking stocks were in a sharp rally on Monday with Nifty Bank, Nifty Private Bank, and Nifty PSU Bank hitting fresh 52-week high levels. Banking stocks take comfort from the latest status quo from RBI where the repo rate is kept unchanged and also the trajectory that the rate hike cycle has ended is likely to boost their margins. Also, raising of GDP growth forecast was another icing on the cake. These factors are positive for the sector.

On Monday, Nifty Bank hit a new 52-week high of 47,588.00 before ending at 47,314.25 up by 52.55 points.

Nifty Private Bank settled at 24,555 higher by 37.15 points or 0.17% after hitting a new 1-year high of 24,707.90. Stocks like RBL Bank, IndusInd Bank, City Union Bank, ICICI Bank, and Kotak Bank were top gainers. There were fewer banks in red, and those were Axis Bank, IDFC First Bank, and HDFC Bank.

Notably, ICICI Bank has hit a new 52-week high of Rs 1,020 apiece on NSE.

Furthermore, Nifty PSU Bank touched a new 52-week high of 5,589.40, before ending at 5,554.10 up by 74.65 points or 1.36%. Stocks like Bank of India, Union Bank, Punjab National Bank, and Bank of Maharastra have touched a new 52-week high as well. All stocks on this index were in the green, and the majority of them were either near their peak levels or have clocked fresh highs.

That being said, PSU bank stocks outperformed private bank stocks in percentage terms.

According to a research note dated December 11, ICICI Securities said that an upward revision in the GDP growth forecast and an unchanged monetary policy stance are likely to have a positive impact on banking stocks, in our view.

The brokerage highlighted that despite continued strong RoA and asset quality, large private banking stock performance has been lacklustre due to: 1) likely moderation in both growth and NIM; and 2) expectations of credit costs bottoming out.

On the growth level, the brokerage's note said, "We acknowledge some headwinds due to the hike in risk weights on unsecured and NBFC lending. However, the recent upward revision in GDP growth estimate provides a much-needed tailwind for systemic credit growth in the near term."

In regards to interest margins and term deposits, the brokerage's note highlighted that investors' concerns on NIM moderating ahead were driven by twin hits of: 1) continued rise in term deposits (TD) rates; and 2) yield moderating due to a possible change in policy rates.

It added, "As highlighted in our Q2FY24 review, we believe that TD cost for some of the large banks are approaching their card rates; thus, overall costs of deposits rise should be modest. The unfavourable deposits mix in the form of declining CASA share would still mean that cost of deposits would still rise, albeit at a moderate pace."

Alternatively, the brokerage also said, "The rise in risk weights could provide some opportunity to increase loan yields in the unsecured/NBFC segment as well. Overall, we see lesser headwinds on NIM trajectory in the near term."

Apart from this, the brokerage also stated that RBI also mentioned that the quantum of small-ticket personal loans is immaterial at

Which banking stocks to buy?

ICICI Securities note said, "We prefer IIB (BUY), HDFCB (ADD) and Axis (BUY) among large private banks. SBI (BUY) is likely to see some RoA hit (~0.9% in Q3FY24 vs. ~1.1% in H1) due to wage bipartite. Retain HOLD on Kotak due to MD&CEO succession; prefer KVB and DCB among regional banks."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.