Motilal Oswal Institutional Equities has placed a buy call on select stocks from the banking and financial space. Most of these are large bluechip banking stocks. The brokerage believes that this quarter will be a quarter of consolidation for the banking and financial space with an eye on earnings recovery. Here are 4 stocks to buy as per Motilal Oswal Institutional Equities.
Motilal Oswal has a "buy" call on the stock of ICICI Bank. The firm believes that the bank continues to see strong growth in retail deposits and has succeeded in building a robust liability franchise over the past few years.
"It has one of the lowest funding costs (with cost of deposits declining to 4%) among the private banks; this has enabled the company to underwrite a profitable business without taking undue balance sheet risks, thus supporting the margin further," Motilal Oswal Institutional Equities has said.
The other reason to be buying the stock of ICICI Bank according to the firm is the retail mix which remains healthy, with the CASA ratio at 46.3%, retail contribution-to-fees at 78%, and the loan mix increasing to 67%.
"ICICI Bank appears firmly placed to deliver healthy sustainable growth, led by focus on the core operating performance. We estimate RoA/RoE of 1.8%/15.2% for FY23E. Adjusted for subsidiaries, the standalone bank trades at 1.9x FY23E ABV," Motilal Oswal Institutional Equities has said.
Another largecap stock where Motilal Oswal Institutional Equities has a "buy" is the stock of HDFC Bank.
"HDFC Bank has shown robust traction in its corporate portfolio, which compensated for the softness in retail lending. Loan growth over FY21 was, thus, largely led by the Corporate segment (53% of total loans). The management of HDFC Bank has shown robust traction in its corporate portfolio, which compensated for the softness in retail lending. Loan growth over FY21 was, thus, largely led by the Corporate segment (53% of total loans)," the broking firm has said.
According to Motilal Oswal Institutional Equities a strong liability franchise would support margins.
"Therefore, the bank is well placed to gain incremental market share on both the asset and liability fronts. We expect RoA/RoE of 2.1%/17.8% for FY23E. The bank trades at 3.1x FY23E ABV," the broking firm has said.
State Bank of India
SBI is another large bluechip banking stock, where Motilal Oswal Institutional Equities has a "buy" call. According to the firm, the bank is well placed to gain incremental market share on both the asset and liability fronts.
"State Bank of India has one of the best liability franchises (Current Accounts Savings Account mix: 46%). As a result, it is poised to manage yield pressure, while a reduction in the interest rate on deposits would continue to support margins (to a large extent). Subsidiaries - SBI Mutual Fund, SBI Life, and SBI CARD - have exhibited robust performances over the last few years, which could result in value unlocking. We estimate FY23E RoA/RoE of 0.8%/14.9%. Subsidiaries account for ~35% of the total valuation. Adjusted for subsidiaries, the standalone bank trades at 0.8x FY23E ABV," Motilal Oswal Institutional Equities has said.
Motilal Oswal Institutional Equities has also recommended to buy the shares of Federal Bank.
"The has been taking a cautious approach in lending to high-rated corporates. The mix of retail loans improved to ~33% in FY21 from 28.4% in FY19. Although business growth remains subdued, we expect a gradual pickup in loan growth, resulting in improved overall operating performance. We expect RoA/RoE of 1.1%/14% by FY23E. The stock currently trades at 1.0x FY23E ABV," the brokerage has noted.
All of the above 4 stocks are picked from the research report of Motilal Oswal. Investing in stocks is risky and investors should do their own research. The author, the brokerage firm or Greynium Information Technologies Pvt Ltd is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.