Sharekhan has come-out with its latest report on the banking sector ahead of the quarterly numbers for the period ending March 31, 2022. Here are some of the banking stocks that have a buy call from the brokerage firm.
Banks to witness healthy growth
Sharekhan says that it expects banks under coverage to report 59% y-o-y earnings growth despite moderate operating profit growth (8% y-o-y).
"This is primarily on account of lower credit costs and healthy fee income growth. Net interest margin (NIM) in Q4FY2022 is largely expected to remain stable or at the similar levels as of Q3 and contribution from treasury income may continue to decline further.
However, margin may have some support from the lower cost of funds. Additionally, the deployment of excess liquidity by banks and pick up in overall loan growth would help margins of banks to remain stable. We expect net interest income (NII) growth of 19% y-o-y for banks," the broking firm has said.
Asset quality is expected to remain stable with modest slippages. Going forward, while performance of the restructured book would be a key to access the credit cost path, management commentary on the same would be a key to watch out for.
Banking stocks to buy ahead of the quarterly results
Stock prices of banks have corrected from their highs on concerns of growth, economic recovery, and asset-quality management.
"We believe gradual pickup in systemic credit and economic recovery, although uneven, would bring back the interest of market participants for the sector, with larger players getting more focus. Banks with better underwriting practices and loan mix stand to gain going ahead. We expect banks to renew their focus on credit growth to sustain profitability going ahead. Asset quality is likely to improve going ahead," the brokerage has said.
The preferred picks from the space for Sharekhan and are good to buy include names like State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, and Kotak Mahindra Bank.
Buy State Bank of India stock
Sharekhan has a buy call on the stock of State Bank of India with a price target of Rs 650. According to the brokerage, advances are likely to be moderate at 9% y-o-y. " The key monitorable would be advances growth and opex outlook, while the asset quality is likely to be stable. Advances are likely to be moderate at 9% y-o-y," the brokerage has stated.
Buy ICICI Bank stock
The brokerage also has a buy call on the stock of ICICI Bank with a price target of Rs 970. Sharekhan feels that advances are likely to grow by 16% y-o-y, aided by retail and SME portfolio. The key monitorable would be asset quality, while the net interest margins are likely to remain stable at 4% according to Sharekhan.
Pressure on margins, treasury income to be lower
According to Sharekhan, margins are expected to be stable or would see marginal expansion. "Banks have become more aggressive on loan growth, which has put downward pressure on yields, while there would be some support with respect to the lower cost of funds. We expect NII growth of 18% y-o-y for banks under our coverage. We may see banks deploying excess liquidity to garner loan book growth, which may also lend support to margin stability," the brokerage has said.