As per Angel One, the heavy-research backed brokerage, in January Indian markets saw heightened volatility amid the US stimulus tapering concerns and though the indices inched higher, it ended the month flat due to persistent FII outflows.
For February month, Angel Broking says that as the Omicron wave seems to be behind and high frequency indicators looks promising and growth is seen to pick up.
While the Fiscal deficit figure for FY2022 at 6.9% was largely in line with street estimates, budgeted deficit figure of 6.4% for FY2023 was 40-50bps ahead of street estimates. The increased deficit for FY2023 was largely due to the Government's continued thrust on increased capital expenditure which should help growth in FY2023.
Angel broking bullish on sectors with earnings visibility
Sectors with earnings visibility will outperform going forward - Given the aggressive
tightening by the US Fed in 2022, we are unlikely to witness a broad based rally like
in 2021 and expect a polarization in the markets. Banking and consumer-facing
sectors should outperform going forward given strong rebound in earnings in
FY2023. We also remain positive on Chemicals and IT sector given high medium-
term growth visibility for both the sectors.
Banking sector picks of Angel Broking:
1. Federal Bank: Buy for a target price of Rs. 135
February 8, 2022 3
Angel Top Picks - Feb 2022
Federal Bank is the country's largest old generation private sector banking entity. At the end of Q3 FY2022 the bank had advances of ₹1.41 lakh cr. and deposits of ₹1.75 lakh cr. The bank predominantly has a secured lending book which helped limit asset quality issues during the Covid 19 pandemic.
Federal Bank has posted a good set of numbers for Q3FY22 as NII/ advances increased by 7.1%/12.1% YoY. Provisioning for the quarter was down by 49.1% YoY as a result of which PAT was up by 29.1% YoY. GNPA and NNPA ratio improved to 3.06% and 1.05% while restructuring remained stable sequentially at 2.6% of advances.
Overall asset quality for the quarter improved in Q3 FY'22 which was in line with our expectations. We expect asset quality to improve further in FY2023 given normalization of the economy. We expect the Federal bank to post NII/PPOP/PAT CAGR of 22.8%/23.7%/23.2% between FY2020-23 and remain positive on the bank.
2. HDFC Bank: Buy for a target price of Rs. 1859
HDFC bank is India's largest private sector bank with a loan book of ₹12 lakh crore in H2FY2022 and deposit base of ₹14 lakh crore. The Bank has a very well spread-out book with wholesale constituting ~54% of the asset book while retail accounted for the remaining 46% of the loan book.
Q3FY2022 numbers were in line with expectations as GNPA/ NNPA reduced by 9/3bps QoQ to 1.26% and 0.37% of advances. Restructured advances at the end of the quarter stood at 1.37% of advances. The bank posted NII/PPOP/PAT growth of 13.0%/10.5%/18.1% for the quarter on the back of strong loan growth of 17.5% YoY. NIMs for the quarter were stable sequentially at 4.1%.
The management has maintained that there will be maximum impact of 10- 20bps on asset quality from the restructured pool. Given best in class asset quality and expected rebound in growth from FY2023 we are positive on the bank given reasonable valuations at 2.9xFY23 adjusted book which is at a discount to historical averages
3. Buy AU Small Finance Bank: For a target price of Rs. 1520
AU Small Finance Bank is one of the leading small finance banks with on book AUM of ~₹40,181 Cr. at the end of Q3FY2022. It has a well-diversified geographical presence across India. Wheels (auto) and SBL-MSME segment accounting for 37% and 39% of the AUM respectively AU continued to report very strong numbers in Q3FY2022 as GNPA/ NNPA reduced by 56/36bps QoQ to 2.60% and 1.26% of advances. Restructured advances at the end of the quarter also declined to 3.6% of advances. The bank posted NII growth of 29.6% for the quarter on the back of strong advances growth of 32.6% YoY while NIMs for the quarter stood at 6.3% We expect AU SFB to post robust NII/PPOP/ PAT CAGR of 21.7%/25.1%/26.4% between FY2020-23 on the back of AUM CAGR of 23.6%. reducing cost of funds will also help NIM expansion going forward. We believe that the worst is over for the bank and expect continued improvement in asset quality in FY2023 which should lead to a rerating.
|Banking stock||Current price||Target price||Upside|
|Federal Bank||98.3||Rs. 135||37.33%|
|HDFC Bank||1479.05||Rs. 1859||25.68%|
|AU Finance Bank||1281.35||Rs. 1520||18.6%|
The above stocks are taken from the Angel Broking February 2022 stock pick report.