Sharekhan Positive On Banking Sector, Picks 6 Quality Private Sector Banking Stocks, Buy

Broking firm Sharekhan has maintained its positive view on the banking sector in Q4FY2023 Results Review. The brokerage picks 6 quality stocks from the sector with a Buy rating for potential upside. According to brokerage, these stocks are HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, and Federal Bank.

The brokerage has assigned an attractive target price on the stock. Given the market price, the stock is likely to give a decent upside of up to 36% from the current level.

Strong Q4, margins key monitorable

Sharekhan said, "Banks in our coverage reported a solid loan growth of 18% y-o-y/5% q-o-q in Q4FY23. Majority of banks indicated that outlook for loan growth continues to remain strong led by retail segment, while in the SME & business banking segments, penetration is lower, so higher traction is likely. With growing distribution, improving product portfolio and a strong stack of digital offerings, the outlook remains strong. In Corporate segment, banks are witnessing good demand from NBFCs, real estate and PSU companies."

Margin headwinds are likely, but earnings trajectory is still expected to remain strong

According to Sharekhan, Overall, banks reported strong earnings growth in Q4FY2023 and ended FY23 on strong note with record RoA/RoE driven by strong PPoP growth and lower credit cost along with improvement in asset-quality matrix.

The brokerage said, "We believe credit growth is expected to normalise at 12-14% at system level in FY24 due to a high base, slower retail deposit mobilization and higher CD ratio across banks barring some PSU Banks. NIMs are also expected to moderate in FY24 vs FY23 as deposits would be repriced higher faster. Prolonged divergence between deposits and credit growth can result in investors focusing on a relatively stronger liability franchise, as risks to a sharp increase in funding costs could be high. Thus, retail deposit mobilisation remains in focus and banks with a superior liability franchise are placed better. Overall asset quality outlook remains stable to positive for the sector."

It added, "We believe additional contingent provision buffers, higher PCR levels, higher capital buffers, and lower stressed assets augur well for banking sector outlook. We maintain our overweight stance on the sector."

Banking Stocks

Large Private Banks	*CMP	Target Price	Upside (In %)
HDFC Bank	Rs. 1600.8	Rs. 1920	19.94%
ICICI Bank	Rs. 935.95	Rs. 1120	19.66%
Axis Bank	Rs. 974.2	Rs. 1140	17.02%
Kotak Mahindra Bank	Rs. 1879.45	Rs. 2250	19.72%
Indusind Bank	Rs. 1332.45	Rs. 1400	5.07%
Federal Bank	Rs. 125.2	Rs. 170	35.78%

*CMP as on 12 June 2023

Disclaimer - These banking stocks have been picked from the brokerage report of Sharekhan. 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 consult with certified experts before making any investment decision.