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3 Banking Stocks To Bet On In August From Angel Broking For Gains Of Up To 32%
Benchmark Indian indices have run up sharply and logging fresh highs every other day, with Nifty topping levels of 16,591 in today's session. So, if you as an aggressive investor want to chase the current market momentum in the equities, here are listed 3 banking stock picks by Angel Broking to bet on in the ongoing August month.
Before we get ahead with the details of these banking sector stocks recommended by Angel broking, let us in brief understand the current economic background:
Economic recovery continued to strengthen in July: As the major portion of the economy was opened up, the country witnessed remarkable economic resilience as reflected in high frequency indicators including PMI, auto sales, e-way bills and GST collection numbers. PMI manufacturing data released for July month showed strong rebound in manufacturing output. Nevertheless, services PMI continues to be in the contraction zone, though it has shown recovery from the June month.
New Covid cases have steadied in the country: The covid situation in the country has eased with positivity rate hovering between 2-2.5% and reporting of 40,000 new cases on a daily basis in comparison to more than 4,00,000 cases at the peak of the second wave. Besides, Kerala accounts for more than 50% of the daily new cases while the situation has improved significantly in the rest of India with positivity rate dropping below 2%.
Continuing progress on Covid vaccination a major positive: As there has been swift pick up in the production of vaccine after a slowdown in May, the vaccination drive too has picked up pace. As on August 8, the percentage of population that has been inoculated with at least a single dose of Covid vaccine has improved to 29% as against around 12 % in May end.
Flush of liquidity from the overseas markets will extend support to Indian equities: Global central banks have been infusing funds into their respective economies to support their country's revival from the economic fall-out due to the Covid outbreak. The US has been leading the way via its QE program, wherein the Federal Reserve pumped in a sum of USD 142 billion in the month of July and on an aggregate basis USD 716 billion in CY 2021. Angel Broking is of the view that global central banks with continue to provide liquidity support, giving an impetus to global markets including India.
3 Banking stocks given a 'Buy' rating by Angel Broking for gains up to 32%
| Banking Stock | Price at the time of recommendation (closing price as on August 11, 2021) | Last traded price | Target price | Potential Gains from the last traded price as on August 17, 2021 |
|---|---|---|---|---|
| Federal Bank | 85 | 83.3 | 110 | 32% |
| HDFC Bank | 1495 | 1516.7 | 1859 | 22.6% |
| Shriram City Union | 1815 | 1938.6 | 2100 | 8.33% |
1. Federal Bank: Buy for gains of 32%
Angel Broking is bullish on Federal Bank, an old generation private sector bank, for potential gains of 32%. The target price set out on the scrip is Rs. 110 while its last traded price is Rs. 83.3
Asset quality was managed well despite Covid second wave in Q1Fy22
The banker despite the second Covid wave has posted decent Q1FY 22 results with NI/ PPOP increasing by 9.4%/21.8% YoY. Provisioning for the period however went up by 22% YoY, impacting PAT, which declined 8.4% YoY. Asset quality somewhat saw a drag, nonetheless considering the acute Covid second wave, the banking entity held it well during the period under review. "We expect asset quality to improve from Q2FY22 given continued opening up of the economy. We expect the Federal bank to post NII/PPOP/PAT growth of 22.8%/23.7%/23.2% between FY20-23 and remain positive on the bank", said the broking firm in its report.
Key financials
| Y/E | EPS | P/E | P/ABV |
|---|---|---|---|
| March | Rs. | (x) | (x) |
| FY2022E | 10.6 | 8 | 1 |
| FY2023E | 14.5 | 5.9 | 0.9 |
2. HDFC bank: Buy for 23% gains
Another stock pick from the banking space by Angel Broking is the country's largest private sector banking entity, HDFC Bank. Angel Broking has given a price target of Rs. 1859, implying an upside of over 22% from the last traded price of around Rs. 1516.
Loan segment registered growth by 14% YoY pushing NII, PPOP and PAT higher for the Q1FY22 period
Asset quality at the bank suffered owing to the Covid second wave backdrop, nonetheless the bank logged growth in NII, PPOP and PAT of 8.6%/18.0%/16.1% for the quarter under review despite higher provisioning, helped by loan growth of over 14% YoY for the June ended quarter of FY22. NIM also saw a decline on a sequential basis owing to change in product mix and interest reversals. Furthermore, despite the loss of 35-40 days of collections, the management at the bank expects good recoveries from slippages in the second quarter that should probably cut down on credit costs going ahead.
"Given best in class asset quality and expected rebound in growth from Q2FY22 we are positive on the bank given reasonable valuations at 3.0xFY23 adjusted book which is at a discount to historical averages", added the brokerage.
Financials
| Y/E | EPS | P/E | P/ABV |
|---|---|---|---|
| March | (Rs.) | (x) | (x) |
| FY2022E | 65.5 | 22.8 | 3.6 |
| FY2023E | 77.9 | 19.2 | 3 |
3. Shriram City Union Finance: Buy for 8% gains
Angel Broking has recommended a 'Buy' on the NBFC, Shriram City Union Finance that lends to small businesses, involving high margin. Furthermore, the firm extends auto, 2-wheeler, gold, and personal loans. Angel Broking expects the stock to hit a target of Rs. 2100 i.e. an 8% gain from the scrip's last traded price.
Asset quality threw a positive surprise in Q1FY22, profits improved, provisioning went down during the quarter
Aided by an improved asset quality scenario, the company posted good quarterly numbers for the June ended quarter of FY22.. NII went higher by 5.23% YoY to Rs. 920 crore while PPOP was up by 0.4% YoY to Rs. 569 crores. Provisioning reduced by over 6% and hence profitability inched higher by 8% YoY.
"Shriram City Union reported a strong 30% sequential decline in disbursement for the quarter which led to flattish AUM at ~ Rs. 29,599 crore. The company reported only marginal deterioration on asset quality front as Gross stage 3 loans increased by 54bps qoq to 6.91% while net stage 3 for the quarter increased to 3.46% while PCR ratio stood at 49.9%", noted the brokerage.
Financials
| Y/E | EPS | P/E | P/ABV |
|---|---|---|---|
| March | (Rs.) | (x) | (x) |
| FY2022E | 207.9 | 8.7 | 1.4 |
| FY2023E | 262.2 | 6.9 | 1.2 |
Disclaimer:
The above stocks are taken from the brokerage report of Angel Broking and need not be taken as investment advice. Equities are trading at record highs and you need to evaluate your own financial standing, risk profile,goals- both short term and long term, before taking any investment call.
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