Markets have been in a consolidation phase with the Sensex hovering around that 52,000-53,000 points mark for many weeks now. Analysts do not expect a significant break-down or even significant gains from here on. So, a time of consolidation is likely, though we must admit that the risks of a downside are far higher around these levels.
Buy the stock of Indian Bank, says Emkay Global
The broking firm has a "buy" call on the stock of Indian Bank, which is a majority government of India owned entity. This is one bank from the government banks, which has over the years managed to keep its non performing assets under control and has been better managed from among the other government owned banks. Brokerage firm, Emkay Global has set a target price of Rs 225 on the stock of Indian Bank, which is a massive 63% from the current market price of Rs 138.
According to Emkay Global, Indian Bank has benefited the most from the merger with Allahabad Bank (Current and Savings Account @41%) and has largely completed the integration process. It is now gearing up to accelerate growth with a strong capital buffer (CET 1 of 11.6% post recent qualified institutional placement).
Growth and margins to improve for the bank
Among the reasons that Emkay Global has a buy on the Indian Bank stock, is that it believes the loan growth and margins would improve going ahead.
"Loan growth was subdued at 7% yoy in Q1 due to lower business activity across segments. However, the bank expects a pick-up in business activity from July and targets 10-12% credit growth, driven by RAM/Corporate growth, subject to no Covid 3.0. The Current and Savings Account ratio is high and healthy at 41%, benefiting from the merger with Allahabad Bank, which led to a lower CoF. This, coupled with lower interest reversals, led to a 51bps qoq jump in NIMs to 2.85%. The bank aspires for 3% net interest margins on better growth/LDR, lower CoF and interest reversals," the brokerage has said.
The firm also believes that bank's RoE to improve to 12%/13% by FY23/24E from a low of 4% in FY20 post-merge.
Another crucial reason to buy the stock would be the fact that NPAs are set to trend down, led by corporate resolutions, according to the brokerage firm.
Our own take on buying the stock of Indian Bank
The only problem we believe right now for the markets is that one must discern, before buying any stock. No doubt the stock of Indian Bank is a good stock to buy, but, investors should do so in small quantities. The biggest reasons for this is that the market is barely 2% away from recent highs, and there is a downside risk. Having said that we ourselves do not see a complete sharp fall, but, a few percentage points in the short term is a possibility.
The stock picked is from the research report of Emkay Global. Investors need to do their own analysis and research before buying the stock. The author, Greynium Information Technologies Pvt Ltd and the brokerage should not be held responsible for any losses incurred based on a decision from the article.