Stocks To Buy: 3 Top Banking Picks As Core Earnings To See Growth

Though there is some credit dip generally in the banking space in the first quarter, this time around as per brokerage firm Prabhudas Lilladher, "systemic credit growth was good at 1.3% YTD in May'22. Assuming a similar MoM run-rate, loan growth could be approximately 2% QoQ for the system largely driven by private banks. NII accretion would be a tad better at 3.0% QoQ leading to a slight NIM improvement. Other income may decline by 27% QoQ driven by treasury loss and lower fees/recovery income which would be offset by lower opex. GNPA may inch up QoQ from 3.9% to 4.0% while provisions may rise by 4bps to 1.2% largely led by private banks.

Stocks To Buy: 3 Top Banking Picks As Core Earnings To See Growth

Positive outliers from the large cap and mid-cap space:

"Among frontline banks, positive outliers on a core PAT basis could be SBI and IIB in large-caps while among mid-caps CUB and FB may outperform. Overall banking PAT might see a 11.5% QoQ drop to
Rs332bn", said the brokerages.

Top 3 picks among such a landscape for the banking industry:

Prabhudas Lilladher has mentioned its top 3 picks from the space as being ICICI Bank, HDFC Bank and SBI. The brokerage has however retained the target price for each of the stocks being Rs. 950, Rs. 1740 and Rs. 600, respectively.

Key monitorables for the banking space:

1) margin outlook as rates have hiked
2) guidance on deposit accretion for some banks and
3) treasury loss if any
for banks.

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