As Nifty Bank nears all-time high, brokerages have ‘buy’ calls on these lenders

With benchmark indices as well as broader markets on a record high spell, Nifty Bank is just less than half a percent away from its peak of 46,369.50, hit in July 2023 on the back of overall bullish sentiment in the markets. Everything is going right for the banking sector, including credit cost, growth in deposits and advances, and the lowest NPA level in many years, say experts.

However, the Nifty Bank index has underperformed the benchmarks in 2023 YTD. The banking index has gained a little over 7 percent in this period as against an over 11 percent jump in benchmark Nifty. Similarly in the last 1 year, as well, the trend has been the same. The Nifty Bank index has advanced 13 percent versus a 15 percent gain in Nifty.

Various brokerages have come out with bullish views on different lenders. Let's take a look at which banking stocks you should buy amid this scenario.

Bank of Baroda: Axis Securities has initiated coverage on this lender with a ‘buy’ call and a target price of ₹255, indicating a 21 percent upside. The stock has already jumped over 53 percent in the last 1 year and 17 percent in 2023 YTD.

"Looking at the last ten years, BOB has been valued at an average of 0.8x P/B due to its asset quality issues that occurred during weak business cycles. However, with the fundamental change in how Indian PSUs operate, a more accountable and judicious approach to managing the corporates shall help banks drive sustainable growth in their business and earnings. Presently, the banking industry is in its best phase in terms of asset quality and we expect it to remain strong over the medium term. Furthermore, with key levers of growth remaining intact, we are confident that BoB would sustain its ROA at over 1 percent over FY24-25E. This, in turn, will justify a re-rating in its valuation as broader equity markets see large capital inflows. BoB with encouraging growth prospects and a stable outlook trades at 0.9x FY25E ABV," it explained.

RBL Bank: Centrum Broking has initiated coverage on this lender with a ‘buy’ call and a target price of ₹331, indicating a 42 percent upside. The stock has already surged over 89 percent in the last 1 year and 28 percent in 2023 YTD.

"In terms of growth, we see clarity emerging on most fronts for RBL coupled with scope for positive surprises going forward. We bake in strong numbers in advances, NII, and PAT, with a CAGR of 23 percent, 26 percent, and 36 percent, respectively, over FY23-26E. We believe that RBL is well-positioned to deliver an average RoAA and RoAE of 1.1 percent and 12 percent over FY24-26, respectively. Current valuations (0.8x PB, 7x PE – 1HFY26) offer enough margin of safety. Further, the long EPS downgrade cycle (which started in FY20) is finally bottoming out in our view. Looking forward to FY24-26, RBL will likely see the best earnings momentum in the sector with 36 percent EPS CAGR," it said.

HDFC Bank: Motilal Oswal has maintained a ‘buy’ call on the lender with a target price of ₹2,070, indicating an upside of over 24 percent. The stock has advanced over 11 percent in the last 1 year and is flat in 2023 YTD.

"HDFC Bank has delivered an exemplary track record over the past two decades. Now the merged entity is set to extend its lead with a market share of 16 percent in loans. Merger offers a major cross-sell opportunity, which along with aggressive distribution expansion, would enable healthy loan growth of 17 percent CAGR by FY26 to ₹34.7 lakh crore. We estimate the mortgage mix to rise to 33 percent by FY26. We estimate a 22 percent CAGR in net earnings over FY24-26, while RoA/RoE would expand to 2.1 percent/17 percent by FY26," it said.

State Bank of India: Motilal Oswal has maintained a ‘buy’ call on the lender with a target price of ₹700, indicating an upside of over 24 percent. The stock has added 6.5 percent in the last 1 year but has shed around a percent in 2023 YTD.

"SBI has strengthened its balance sheet by creating higher provisions. It raised its PCR (including TWO) to 91 percent in 1QFY24. Systemic credit growth is expected to be 12-14 percent in FY24. A higher mix of floating loans, which could benefit from re-pricing will continue to support the NII and overall earnings even as the deposit cost could increase. Among PSU banks, SBI remains the best play with a healthy PCR, Tier I of 12 percent, strong liability franchise, & improved operating profitability. We expect RoA/RoE of 1.0 percent/ 17.8 percent in FY25," it stated.

Bank of India: Motilal Oswal has maintained a ‘buy’ call on the lender with a target price of ₹117, indicating an upside of 11 percent. The stock has already rallied 107 percent in the last 1 year and 26 percent in 2023 YTD.

"Continued healthy business growth, steady margins and moderation in credit cost are seen to aid gradual improvement in RoA at 0.8 percent in FY25E. Recovery from stressed and written-off exposure provides a boost to earnings and thus acts as a re-rating catalyst. Bank of India has reported a healthy revival in credit growth in FY22-23; in line with industry. Focus on improving the granularity of advances has led to a rise in the proportion of non-corporate loans from 51.6 percent in FY21 to 55 percent in Q1FY24. Going ahead, the bank targets advance growth of 11-12 percent in FY24-25E with a continued focus on the retail/ MSME segment, while the opening of new mid-corporate branches & pipeline of ₹40,000 crore in corporate sanctions is seen to aid traction in the corporate segment," it stated.

Punjab National Bank: Sharekhan has maintained a ‘buy’ call on the lender with a target price of ₹86, indicating an upside of 16 percent. The stock has already soared 87 percent in the last 1 year and 37 percent in 2023 YTD.

"Asset quality trends are quite encouraging and will help in faster normalization of credit cost for the bank. Lower slippage trends are likely to narrow the perceived gap in underwriting with respect to peers. Provisions for the remaining 9 months of FY24 would be largely related to the back book (net NPLs & restructured book). Thus, we should see return ratios staying subdued for a few more quarters on the back of high credit costs but the market may look through a one-time book-value adjustment. We expect opex costs to fall substantially led by lower pension-related provisions as bond yield stabilises and credit costs to fall significantly as net NPAs decline steadily in FY24 to 1 percent that should boost the return ratios in FY25," it explained.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.