2 Large Cap Banking Stocks To Buy For Gains Up TO 32%, Recommended By Top Brokerage Firms

HDFC Bank

HDFC Bank is a private sector large-cap bank with a market capitalization of Rs 7,70,694 crore. It provides corporate banking and custodial services and is also involved in treasury and capital markets. In addition, it offers project advisory services and capital market products, including GDR and currency bonds.

Stock Outlook

July 25, Monday, the stock of the company opened at Rs 1,395 apiece, currently trading at Rs 1,390.70 apiece on NSE. On Friday, the stock closed at Rs 1,392.50 apiece. The stock's 52-week low of the stock is Rs 1,271.60 apiece and the 52-week high is Rs 1,725 apiece.

Last week, its share gained 3.24%, whereas, 2.76% in the last 1 month. In the last 1 year, the stock gave a negative return of 3.57%. In the past 3 years, it has given positive returns of 70.78%. and 59.94% in the past 5 years, respectively. The ROE of the stock is 12.56%.

HDFC Bank Q1FY23 Results

During Q1FY23, the bank's NIM remained stable at 4.0% vis-à-vis Q4FY22. NII grew 2.8% sequentially to Rs. 20,915cr (+16.0% YoY), due to an increase in advances (+1.9% QoQ). The cost-to-income ratio (excluding trading and mark-to-market gains/losses) went up by 70bps QoQ to 39.0%, led by the ongoing expansion of its branch network, leading to 3.1% QoQ growth in operating expenses at Rs. 11,355cr. Of this, employee costs stood at Rs. 4,607cr (+9.7% QoQ, +26.4% YoY), due to the onboarding of new employees. Provisioning fell further to Rs. 3,665cr (-9.1% QoQ, -31.7% YoY). Due to higher expenditure, PAT fell -8.2% QoQ to Rs. 9,616cr, but was up +21.1% YoY.

According to Geojit, "The ongoing expansion of branch network and cards business, coupled with the merger, is expected to aid long-term growth. In the near term, however, the recent hiring spree and investments towards setting up branches may put pressure on the bank's pre-provision operating profit margins and the bottom line. Nevertheless, the bank's long-term outlook remains positive. We thereby retain our BUY rating on the stock, with a lower target price of Rs. 1,705 based on 2.9x FY24E BVPS."

Potential Gains

According to the brokerage's target price of Rs 1,705 apiece, if investors buy the stock of the company at the current market price i.e. Rs 1,390.70 apiece they could expect potential gains of 23% in 12 months.

ICICI Bank

ICICI Bank is the sector biggest private sector bank after HDFC Bank in India with a market capitalization of Rs 5,56,543 crore, it is a large cap banking stock. The bank offers a diversified portfolio of financial products and services to retail, SME and corporate customers. The Bank has an extensive network of branches, ATMs and other touch-points

Stock Outlook

25 July, Monday, ICICI Bank opened at Rs 803 apiece, the previous close on Friday was Rs 800.05 apiece. The current market price at the time of writing is Rs 798.60 apiece. It touched its lowest, 52-week low at Rs 642.15 apiece, and 52-week high, its peak at 867 apiece on NSE.

Its share in the last week gained nearly 4.21% and 12.76% in past 1 month, respectively. In the last 1 year, the shares moved up around 18.89%. In 3 and 5 years, its shares have given promising returns of 96.7% and 164.51%, respectively.

ICICI Bank Q1FY23 Results

PAT grew 50% YoY (7% beat to MOSLe) to Rs 69b in 1QFY23, aided by healthy NII growth, strong fee income, and controlled provisions. The bank reported an annualized RoA/RoE of 2%/15.9% in 4QFY22. NII growth stood at 21% YoY (in line), aided by a 2bp QoQ expansion in domestic NIM to 4.14% and healthy loan growth of 21%. Other income rose 17% YoY, but fell 2% QoQ to Rs 46.7b. Growth was led by a 32% YoY increase in fee income, driven by healthy performance across segments. The bank reported modest treasury gains of Rs 0.4b (Rs 1.3b in 4QFY22). A lower duration AFS portfolio minimized the MTM impact in 1QFY23.

According to Motilal Oswal, "ICICI Bank reported a robust operating performance, driven by a combination of impressive core PPOP performance and controlled provisions, despite the creation of contingent provisions, underpinned by pristine asset quality. A stable mix of high-yielding portfolio (Retail/Business Banking) and a low-cost liability franchise is fueling steady NII growth. The bank is seeing a strong recovery in business trends across key segments such as Retail, SME, and Business Banking. Asset quality trends remain steady, while PCR remains one of the best in the industry ~80%. The additional COVID19 provision buffer (90bp of loans) renders further comfort."

The brokerage added, "Ahead of this new growth cycle, the bank is already positioned well with superior margins, strong RoE/asset quality and robust capitalisation levels. The stock return will be a function of earnings growth and re-rating over the coming years and ICICI Bank has all the ingredients in place to take over the pole position in the Indian Banking space. We estimate the bank to deliver a FY24 RoA/RoE of 2.1%/17.1% and reiterate our Buy rating with a SoTP-based Target Price of Rs 1,050 per share (2.8x FY24E ABV). ICICI Bank remains our top pick in the sector."

Potential Gains

Considering Motilal Oswal's estimated target price of Rs 1,050 apiece if the investors buy the stock at the Current Market Price i.e. Rs 798.60 apiece, they can expect a surge of 32% in 12 months.

Banking Stocks- CMP, Target Price, 1 Year Returns & Potential Upside