SBI, BoB, Canara Bank, Indian Bank, Union Bank: Motilal Oswal Recommends Buying In Top 5 PSU Bank Stocks!

Brokerage Motilal Oswal has maintained its overweight on the banking sector and recommended buying in the top 5 PSU bank stocks. These are, SBI, Indian Bank, Bank of Baroda, Union Bank of India, and Canara Bank which on Monday announced its first-ever stock split. Meanwhile, Motilal is neutral on Punjab National Bank. According to Motilal, although, public sector banks have witnessed a significant outperformance over the past three
years and the sector has seen a significant re-rating.

Motilal believes that the stock valuations still look reasonable in the context of business growth and profitability (~18-19% RoE over FY24-26E).

Further, Motilal said that the combined profitability of six PSBs under our coverage will surpass ~INR1t in FY24E. We estimate aggregate earnings of our PSB coverage to register a CAGR of 21% over FY24-26E (boosted by PNB & SBI), thereby reaching INR1.7t by FY26E."

The brokerage believes that while NIMs may remain range-bound with a slight downward bias, the improvement in opex ratios, scope for further credit cost reduction (barring SBI), and a healthy treasury performance will enable the sector RoA to reach ~1.2% by FY26E.

Considering PSBs' valuation history, Motilal explained that their trading multiples may look constrained now; however, the quality of earnings, growth outlook, and broader re-rating in Public Sector enterprises will enable steady performance for the sector.

Motilal also highlighted that several PSBs have raised capital from the market, which should aid business growth, particularly as the capex cycle revives post-general elections. It added, "We believe that sustained and consistent performance on return ratios and a conducive macroenvironment can drive further re-rating of the sector."

On valuations, Motilal revealed that PSBs have made a sharp comeback in recent years, with the Nifty PSU Bank Index alone delivering 162% returns since Mar'22, overshadowing the 24% returns of the Nifty Private Bank index over the same period.

"We estimate the top six PSBs under our coverage to report a PAT of INR1.5t/INR1.7tn in FY25/FY26, while the sector's RoA/RoE is expected to improve to 1.2%/17.9% by FY26E," Motilal said.

Accordingly, Motilal said, "We maintain our OW stance and roll forward our PTs to FY26. Top picks: SBIN & UNBK."

While SBI and Union Bank are top picks of Motilal Oswal, it has also recommended buying three other PSU banks.

Motilal Oswal Target Prices For Top PSU Bank Stocks:

1. SBI: BUY For Rs 860 Target Price. The TP has been maintained by Motilal.

2. Bank Of Baroda: Buy From Rs 310 Target Price, which has been raised from Rs 290.

3. Indian Bank: Buy For Target Price Of Rs 600, which has been raised from earlier Rs 525.

4. Union Bank Of India: Buy For Target Price Of Rs 175, which is also raised from an earlier target of Rs 165.

5. Canara Bank: This PSU has declared its first stock split in the ratio of 1:5. Motilal recommends buying for a Target Price of Rs 570.

6. Punjab National Bank: Motilal is NEUTRAL on PNB with a Target Price Of Rs 115 from the earlier Rs 100.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.