2 Nifty Stocks That Motilal Oswal Has A “Buy” Call For Good Gains

Motilal Oswal has a buy call on the stocks of HDFC Bank and HCL Tech, according to its latest report. "The markets are likely to continue witnessing volatility given weak global cues, ongoing earnings season and overstretched valuations. Given the sharp rally in the market, many stocks are priced to perfection thus leaving very little room for any kind of disappointment," Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Buy HDFC Bank, says Motilal Oswal

The broking firm has set a target price of Rs 2,000 on the stock of HDFC Bank, as against the current market price of Rs 1,676. According to the firm, strong recovery in retail loans along with robust trends in commercial and rural loans resulted in a pick-up in NII growth to 12% YoY vs 8.5% YoY in 1QFY22.

"Core net interest margins stood flat QoQ at 4.1%. This coupled with healthy fee income resulted in a net profit of Rs 88.3 billion (+18% YoY; inline)," the brokerage has said.

According to Motilal Oswal, the bank witnessed a healthy pickup in business momentum as deposits/loans were up 4.5% QoQ each. Retail segment grew 13% YoY while Commercial and Rural Banking grew robustly at 27.6% YoY. CASA deposits grew 29% YoY and the ratio now stands at 46.8% (+130bp QoQ).

Motilal Oswal’s valuation and view on the stock of HDFC Bank

"Earnings were in line, despite making additional contingent provisions to strengthen its Balance Sheet. Asset quality ratios have improved, while the restructured book increased to 1.5% of loans (v/s 0.8% in 1QFY22). However, high provision coverage and contingent provision buffer provide comfort on asset quality.

Pick up in loan growth particularly retail would aid NII and margins which would drive profitability. Our estimates remain unchanged at 20% PAT CAGR over FY21-24E, with a RoA/RoE at 2.1%/18.3% in FY24E. We maintain Buy and roll-forward our estimate to Sep'23E with a revised target price of Rs 2,000 per share (3.6 times Sep'23E ABV + Rs 120 per share from subsidiaries)," the brokerage has said.

Buy HCL Tech for target of Rs 1,430

The brokerage also sees an upside potential of Rs 1,430 on the stock of HCL Tech, as against the current market price of Rs 1,212.

"We are encouraged by the strong performance in the Services business, especially the ER&D vertical, where the demand environment remains favorable. With the management expressing confidence in continued growth momentum in the business in 2H, this should drive growth in FY22," the brokerage has said.

"We tweak our FY23E EPS estimate by 2% due to a slower pickup in high margin Products and Platforms business. We maintain our Buy rating as we expect traction in the Services business in 2HFY22E and FY23E, driven by higher IMS/Cloud-focused deals. Our target price of Rs 1,430 per share implies 25 times FY23E EPS," the brokerage has said.

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal Financial Services. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.