2 PSB & 3 Private Sector Banks Are Preferred Picks By Sharekhan In Its Q1FY23 Results Preview Report

Sharekhan Research in its Q1FY23 Result Preview, released on July 1, has picked 5 banking stocks as preferred picks with buy call. These banks include 3 private banks ICICI Bank, HDFC Bank, & Kotak Mahindra Bank and 2 Public sector banks namely State Bank of India (SBI) & Bank of Baroda (BoB).

Credit growth picking up well; remain watchful on margins

The banking sector is expected to report steady performance in Q1FY23E led by healthy loan growth and controlled credit costs. Banks are likely to report healthy growth in advances with large private banks continuing to gain market share. Deposits growth should also be healthy but would lag advances growth for major banks. However, business growth momentum is expected to moderate sequentially.

NII growth is likely to be higher and margins would remain stable sequentially. Banks exhibiting pricing power in terms of repricing of assets & liabilities which happened in last 2 months of quarter and having a higher share of floating rate loans are expected to clock higher NII growth and margins (ICICI Bank, HDFC Bank, Axis Bank and SBI). However, its full impact would be seen in Q2FY23."

Higher opex growth for private peers and muted treasury performance for PSBs to hurt PPoP growth. Benign core credit cost would support earnings and asset quality may improve further for banks in our coverage due to moderation in slippages and healthy recoveries, better collection efficiencies. While performance of the restructured book would be a key to access the total credit cost path, one would need to keenly eye management commentary on it.

Banking Stocks- CMP, Target Price & Potential Upside

 

Banking Stocks	CMP	Target Price	Potential Upside
State Bank Of India	Rs 478.30	Rs 600	25.44%
Bank Of Baroda	R 104	Rs 128	23.08%
HDFC bank	Rs 1,355	Rs 1,800	32.84%
ICICI bank	Rs 750.75	Rs 970	29.20%
Kotak Mahindra Bank	Rs 1,769.15	Rs 2,250	27.18%

Stock Performance & other details

State Bank of India - State Bank Of India in the last 1 week gave a negative return of 1.27%. The stock last 1 year has given a positive return of 11.48%, in 3 years 32.16% and 64.8% in the past 5 years, respectively. It is a large cap Public sector banking stock with a market capitalization of Rs 4,29,407 crore.

Bank Of Baroda - The stocks of Bank of Baroda in the last 1 week has maintained their position. However, it moved up 4.43% in the past 1 month. In 1 year it has given a positive return of 24.63%. In 3 and 5 years of investment, it has given a negative return of 16.63% and 36.36%, respectively.

HDFC Bank - The bank's share price in the past 1 week has slid 2.85% and moved up 3.35% in the past 1 month, respectively. The stock has given negative returns of 9.55% in the past 1 year, 1329% of positive returns in 3 years and 61.43% in 5 years, respectively. It is one of the biggest private sector large-cap banking stocks in India with a market capitalization of Rs 7,55,419 crore.

ICICI Bank - ICICI Bank's stock in the past 1 week has gained 1.15%, and 9.48% in the past 1 month, respectively. The stock has given positive returns of 12.97% in 1 year & 75.74% of positive returns in 3 years, respectively. In 5 years of investment, the stock has given multibagger returns of 151.63%. It is another large cap public sector bank with a market capitalization of Rs 5,22,339 crore.

Kotak Mahindra Bank - Kotak Mahindra Bank in past 1 week has given a positive return of 1.36%, and 1.29% in 1 month, respectively. The share of the company moved up 0.8% in 1 year. In 3 and 5 years, its share value gained 18.77% & 80.32%, respectively. The is also a large cap private sector banking stock with a Market Capitalisation of Rs 3,50,094 crore.

 

Sharekhan's Views on Valuation

The brokerage said, "We believe valuations are reasonable for banks after the steep correction caused due to inflation volatility. We expect business momentum for banks to improve further and sustain going ahead, as higher inflation is tamed, capex cycle revives, higher consumptions and higher business confidence. Indian economy is likely to bounce back despite global risks. The recovery is getting entrenched and is broadening. Most banks reported improvement in asset quality, led by improvement in collection efficiency, higher recoveries and lower slippages trend in FY22 which is expected to continue going ahead. Further, we believe that with additional provision buffers, higher PCR levels, higher capital buffers and core credit cost undershooting augur well for banks growth and future unforeseeable risks. Key monitorable would be slippages from the restructured book."

According to the brokerage, the key risk to their buy call is Economic slowdown due to which slower loan growth and higher-than-anticipated slippages and higher credit cost could affect earnings.

Disclaimer

The stocks have been picked from the Sharekhan Research's Q1FY23 Result Preview Report. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.