Top 5 Stocks To Buy In BFSI Space As Suggested By ICICI Direct

In its June 3 report, ICICI Direct has come out with its outlook for the banking sector and likewise has listed the performance, the outlook and its top picks from the BFSI space.

"The banking sector has outperformed against the overall market (the Bank Nifty registered a fall of 1.6% whereas the Nifty fell 3.7% in the past three months) as the earnings outlook has improved due to expected lower credit cost, improved asset quality and better topline growth", says the report.
As the pandemic related woes are seen behind, there should be seen offtake in credit as well as collection efficiencies are expected.

Credit growth noted

"Taking over the baton from the previous quarter, bank credit growth has picked up pace, further led by the retail and MSME segments. The corporate segment is showing green shoots of revival as working capital limits are getting utilised. Bank credit growth is expected to pick up further as the impact of pandemic led disruptions recede, demand improves further, ECLGS scheme gets extended, etc. We believe NPAs have largely bottomed out with lower credit cost expected to aid earnings trajectory ahead", adds the report.

Banking sector outlook:

"Overall non-food credit has grown 11.3% in April 2022, which is meaningfully up when compared to a trajectory of ~5.5% level seen during the beginning of FY22. As per latest sectoral deployment data, pick up in credit growth is largely driven by retail and MSME segment as they were up 14.7% and 35.1%, respectively, on a yearly basis. MSME segment has seen robust growth of over 30% in the past few months. GNPA ratio for banks in our coverage declined in the range of 10-70 bps with average drop being at 40 bps. PCR has inched up 150 bps QoQ to around 72%.

Overall, this quarter saw healthy business momentum continuing with improvement in asset quality. HDFC Bank outperformed its comparable peers on the growth front while Kotak and IDFC First Bank also recorded a strong loan trajectory. Private banks have clearly outperformed their PSU counterparts, growing 15% YoY and 6% QoQ

In an off-cycle policy meet, RBI increased its repo rate to 4.4%, with reverse repo rate unchanged at 3.35% and MSF at 4.65%. Also, in a recent media interview the RBI governor had hinted that there would be a rate hike in the coming months, thus indicating continuance in further hardening of rates.

Top BFSI stock picks: SBI from PSU, Axis Bank, Bajaj Finance among large lender and SBI Life and Star Health

"We prefer lenders with healthy CASA base, higher floating rate asset, adequate PCR and capital. Thus, we have a positive stance on Axis Bank, Bajaj Finance among large lenders and SBI Life, Star Health in the
insurance coverage universe. We prefer SBI among PSU banks as bottoming of NPA and business growth would aid earnings trajectory and, thus, return ratios ahead. Continued competition from new age fintech
players is expected to keep the performance of mid-sized banks volatile. Collaborative structure of neo banks could assist traditional banks to showcase and widen their offerings mostly towards untapped segment, notes the report.

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