Axis Securities lists 6 bank and financial stocks to buy after Q1 earnings season

ICICI Bank: The brokerage has a BUY call on the stock with a target price of ₹1,250, indicating an upside of over 31 percent. The bank has consistently outperformed its peers and has been firing on all cylinders. ICICIB has met most criteria in terms of growth, margins, and asset quality, it said. ‘The bank has started FY24 well and we expect this momentum to continue.  Given the ample growth opportunities, the bank will continue to invest in the franchise and strengthen its teams to drive business growth.  Strong asset quality metrics should keep credit costs benign and enable ICICIB to deliver a consistent RoA/RoE of 2-2.2 percent/17-18 percent over FY24-25E. We continue to value ICICIB on the back of (1) Strong retail-focused liability franchise, (2) Buoyant growth prospects, (3) Stable asset quality coupled with healthy provision coverage, (4) Adequate capitalization, and (5) Potential to deliver robust return metrics,’ it said.

State Bank of India: The brokerage has a BUY call on the stock with a target price of ₹715, which implies a potential upside of 26 percent. In Q1FY24, SBI reported healthy credit growth of 14% YoY. While domestic credit growth is expected to remain healthy, the bank is taking a cautious approach to growing its international loan book owing to challenges in the global economies. Axis expects SBI to continue delivering healthy RoA/RoE of 1 percent/15-17 percent over the medium term. Amongst PSU banks, SBI with (1) a healthy PCR, (2) adequate capitalisation, (3) a strong liability franchise, and (4) an improved asset quality outlook remains the best play of the resilient Indian economy, it said.

Federal Bank: The brokerage has a BUY call on the stock with a target price of ₹160, implying an upside of almost 18 percent. ‘Credit demand and credit off-take across segments remain buoyant, with ample opportunities for growth. Over the medium term, we expect credit to grow at 18 percent CAGR and expect the share of high-yield products in the portfolio mix to improve,’ it said. FB remains well-positioned to deliver an RoA of 1.3 percent in FY24, with a gradual improvement expected over the medium term. The bank’s healthy levers for achieving ROA are (a) Sustained business growth, (b) Improving mix of high-yield products in the portfolio supporting margins, (c) Strengthening the core fee income profile, and (d) favourable credit costs supported by high asset quality, it added.

Ujjivan Small Finance Bank: The brokerage has a BUY call on the stock with a target price of ₹54, indicating a 7 percent upside. With strong growth levers across segments, the bank remains well-positioned to deliver a healthy advances growth of 25 percent CAGR over FY23-25E. UJSFB’s brand campaign to improve brand awareness and recall will help the bank build a granular retail-led franchise. This, along with leveraging its branch network and availability of cross-selling opportunities, will enable healthy deposit mobilisation. Given strong asset quality trends, credit costs are expected to be below 100 basis points in FY24. On a steady state basis, the bank will look to deliver RoA of 2.5 percent, it said.

CreditAccess Grameen: The brokerage has a ‘buy’ call on the stock with a target price of ₹1,600, implying a 15 percent upside. ‘Among microfinanciers, we prefer CAGrameen despite its premium valuations. We believe the company is well-positioned to deliver superior performance over the medium to long term. This is supported by (a) Strong rural presence and focus, (b) a Customer-centric approach, (c) Robust technology infrastructure, (d) Strong Risk Management Framework and (e) Adequate capitalization,’ it said.

Bajaj Finance: The brokerage has a ‘buy’ call on the stock with a target price of ₹8,800, which implies a potential upside of 24.5 percent, Supported by strong customer growth and buoyant growth in booked loans, the management has revised its AUM growth target for FY24 upward to 29-31%, from 25-27% previously.  Over the past 6 years, BAF has been able to build scale, deliver consistent profitability, and maintain asset quality thanks to a stable portfolio mix. The impact on margins in Q1FY24 was lower than expected. However, in the absence of opportunities to pass on the higher interest rate to customers and refinancing of maturing liabilities at higher rates, margins will continue to be pressured and likely shrink by ~30 bps over the next couple of quarters before stabilising. Even as BAF continues to invest in technology, the onset of operating leverage will help to gradually improve its cost ratios in FY24. BAF remains well positioned to deliver stable RoA/RoE of 4.6-4.8% and 21-23%, it said.