Motilal Oswal Places Buy Call On These Two Large Cap Banking Stocks, Details Inside

Motilal Oswal in its recent report maintains a buy call on two large-cap banking stocks namely HDFC Bank and IndusInd Bank. The brokerage has not given any target price to the stocks. Below are the key takeaways of the bank:

HDFC Bank- Stock Outlook

On the NSE, its current market price is Rs 1,450.95 per share. Its 52 week low is Rs 1,271.60 and the 52 week high is Rs 1,725, respectively.

The shares of HDFC Bank surged 2.77% in a week. It gave 2.19% negative returns in the past 1 month. Whereas, in the past 3 months it gave 7.18% positive returns. Over the past 1 year, it gave 8.37%% negative returns. In the past 3 and 5 years, it gave 22.13% and 61.71% positive returns, receptively.  It is India's largest private sector bank with a market cap of Rs 8.07,076 core.

HDFC Bank - Sequential decline in direct assignments

Here are the takeaways from HDFC's pre-quarterly release: 

• HDFC sold down loans worth INR91.5b in 2QFY23 v/s INR 71.3b YoY and INR 95.3b QoQ. We expect it to report an upfront assignment income of ~INR2.8b from the sell-down. The NBFC has sold loans worth ~INR345b in the trailing 12 months (v/s ~INR272b in previous year). 
• Under Ind AS guidelines, employee stock options are fairly valued and charged to the P&L under employee expenses over a two-year vesting period. ESOP expenses have now declined to a quarterly run-rate of INR 0.6-0.7b. The same will continue for one more quarter as well (almost half the quarterly run-rate of INR 1.2-1.4b until 2QFY22). 
• Dividend income stood at INR13.6b v/s INR11.7b in 2QFY22. 
• There was no profit from the on sale of investments in 2QFY23, similar to that in 2QFY22. 
• HDFC is our preferred pick in the Housing Finance space. We like its ability to gain profitable market share, despite significant competitive pressures. The buoyancy in the Real Estate market continued in 2QFY23. Even non-Individual disbursements have started to pick-up and is exhibiting an improved momentum in disbursement growth. 
• The company has built a large provision buffer to guard against contingencies in NPLs. We expect a sequential decline in credit costs in 2QFY23 and see it delivering a core RoE of ~13.6% in the medium term.

IndusInd Bank (IIB)- Stock Outlook

The current market price of the stock is Rs 1,215.30 per share on NSE. Its 52-week low and high are Rs 763.20 and 1,275.80, respectively.

The shares of the bank surged 4.65% in a week, whereas, in the past 1 month it surged 10.77%, and in the past 3 months around 46.54%, respectively. Over the past 1 year, it gave 8.88% positive returns. In the past 3 and 5 years, it gave 3.64% and 28.18% negative returns, respectively. It is a large cap bank having a market cap of Rs 94,504.39 core.

IndusInd Bank - Business momentum strong; CASA mix moderates to 42.4%

IIB released its quarterly update, highlighting key business numbers for 2QFY23. Following are the key takeaways

• Net advances picked up and grew 17.6% YoY to ~INR2.6t. Loan growth continues to remain healthy and grew at 4.7% QoQ (v/s +3.7% QoQ in 1QFY23). The CD ratio for the bank improved further to 82.2% (up 40bp QoQ). 
• Deposit growth came in strong at 4.2% QoQ (up 14.6% YoY to ~INR3.16t). Within deposits, CASA/term deposits grew 2.3%/5.7% QoQ (up 15.5%/14.1% YoY). The CASA mix thus declined by 80bp QoQ to 42.4%. 
• Growth in Retail/Small Business deposits remains strong and grew 4.7% QoQ to INR1,299b. The management remains focused and is making consistent progress on shoring up its Retail deposit mix. Currently, Retail/Small Business deposits constitute 41.1% of total deposits. 
• IIB continues to report a strong pickup in loan growth and we expect these trends to remain healthy which is likely to support margins. Deposit franchise too is growing strongly, with sustained focus in ramping up of Retail deposits. Improvements in asset quality, particularly in the MFI/Restructuring book, and CV demand outlook will be a key monitorable.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.