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Banking And Finance Stocks To Buy As Listed By Motilal Oswal For Upto 30% Gains
Motilal Oswal Institutional Equities has listed the stocks of HDFC and Federal Bank amongst its top buys in its recent research report. While we do highlight brokerage reports at goodreturns.in, we have also been telling investors to be little cautious now, with the Sensex at historic peaks.
Buy Federal Bank, says Motilal Oswal
| Current market price | Target price | Gains % |
|---|---|---|
| Rs 84 | Rs 110 | 30.95% |
According to Motilal Oswal Institutional Equities, gross advances at Federal Bank grew 9.7% YoY to Rs 1.4 trillion. The bank has reported a strong recovery in business trends with a 3.4% sequential growth (v/s a 1.6% QoQ decline in 1QFY22 affected by the second COVID wave). The growth is largely contributed by a recovery in retail assets such as gold, home, and auto loans.
According to Motilal Oswal Institutional Equities the bank continues to maintain a high liquidity coverage ratio (LCR) of 226 per cent (v/s 216% in the first quarter of FY22).
"Federal Bank posted a strong recovery in business trends, despite higher COVID-19 cases in its core state. It reported a strong performance, despite many odds. The Current Account Savings Account trend remain healthy, with the liability franchise holding up well for the bank. We expect an improvement in margin in 2QFY22, supported by a recovery in credit trends and lower cost of funds. We maintain our Buy rating with a target price of Rs 110 per share (1.2 times FY23E anticipated book value).
The stock of Federal Bank was last seen trading at Rs 84.
Buy HDFC, says Motilal Oswal Institutional Equities
According to the brokerage HDFC sold down loans worth Rs 71.3 billion in 2QFY22 v/s Rs 30.3 billion YoY and Rs 55 billion QoQ. "We expect the company to report an upfront assignment income of Rs 3.2-3.3 billion from the sell-down. Note that in the prior fiscal, it sold down Rs 190 billion worth of loans," the brokerage has said.
"HDFC is our preferred pick in the Housing Finance sector. We like HDFC's ability to gain profitable market share, despite significant competitive pressures. The Real Estate market saw a swift turnaround in 2QFY22. We expect this sector to remain reasonably buoyant even in the absence of any stamp duty cuts. With incremental cost of funds from the capital markets at
5.5-6%, the company has been able to manage spreads, despite the sharp cut in home loan yields, led by the largest Public Sector Bank in India. HDFC has built a large provision buffer to guard against contingencies in non performing assets from COVID-led disruptions. We expect it to deliver a core Return on Equity of 12-13% over the medium term.
The Motilal Oswal Institutional Equities report does not suggest any target on the stock. The shares of HDFC were last seen trading at Rs 2754 on the NSE.
Disclaimer
The above stocks are picked from the brokerage report of Motilal Oswal Institutional Equities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. The above report is for informational purposes only.
