7 Bank Stocks To Buy After Good Third Quarter Results

Third quarterly numbers for most companies are done and banks have reported good numbers. Here are 7 bank stocks that Sharekhan has a buy on post quarterly numbers.

Earnings above expectations

In Q3FY2022, banks under Sharelhan's coverage witnessed robust operating performance with most banks posting earnings above expectations.

"Overall, net interest income (NII) grew by 12% y-o-y and 3% q-o-q. Likewise, PAT rose by 39% y-o-y and 14% q-o-q during the quarter. However, lower treasury income and higher cost to income ratio, due to increased business volumes contained some of the earnings growth during the quarter. Overall credit for our universe saw healthy growth of 13% y-o-y and 6% q-o-q.

This acceleration in credit was aided by pick-up in corporate credit and strong growth in the retail segment, including mortgage loans and credit cards. Personal loans witnessed signs of pick-up and vehicle loans growth continued to remain subdued on account of underlying weak volumes. Asset quality showed improvement for most banks in Q3. This was aided by moderate slippages, better recoveries, and higher write-offs. However, stress remained elevated in some segments such as SME, CVs, and MFI," the brokerage has said.

Top stocks to buy from the banking sector post quarterly numbers

For Sharekhan the top picks from the sector are SBI, ICICI Bank, HDFC Bank, Axis Bank, and Kotak Mahindra Bank. For SBI, the brokerage has set a price target of Rs 650, as against the current market price of Rs 485. For Federal Bank it has set a price target of Rs 139, against Rs 96, which is massive gains.

For HDFC Bank, the firm believes that the stock can rise to Rs 1973, as against the current market price of Rs 1473. Similarly, it has set a price target of Rs 970 on ICICI Bank and Rs 1340 on IndusInd Bank. On Kotak Mahindra Bank, the firm has set a target of Rs 2428 with a buy call.

Improvement in asset quality

Sharekhan believes that Q3FY2022 witnessed moderation in fresh slippages, better recoveries, and higher write-offs, which consequently led to a decline in GNPA ratio. "GNPA ratio for our coverage stood at 1.3-4.5% in Q3FY2022.

However, the retail segment continued to see elevated stress in segments such as CVs, TWs, MFI, and SME. PCR increased by 200 bps to 400 bps q-o-q for most banks and the banks continue to carry additional provision buffers. Restructured book remained stable sequentially for most banks, while some witnessed a decline of 10 bps to 30 bps q-o-q. ICICI Bank and Axis Bank saw 2-6% decline in BB and below book during the quarter. Managements of banks sounded optimistic on the minimal impact of the third wave of COVID-19 and indicated continued improvement in collection efficiency," the brokerage has said.

Valuations and view

The brokerage expects growth momentum for banks to remain buoyant going ahead, as economic activity gains pace and capex cycle revives.

"Most banks reported better asset quality, led by improvement in collection efficiency and lower slippages trend, which is expected to continue going ahead. Further, we believe with additional provision buffers, credit cost for banks is likely to be contained going forward," the brokerage has said.