Brokerage house BNP Paribas believes investing in banks is not a cakewalk at this juncture amid rising inflation, hardening rates and tightening liquidity, a report by the Economic Times said.
However, asset quality stress has peaked out and banks have adequate provisioning, which should support an 'eventual' spurt in credit growth, ET report stated quoting BNP Paribas.
BNP Paribas' top picks in the sector, as per the ET report, are HDFC Bank followed by ICICI Bank and Axis Bank. the brokerage also has 'buy' ratings on State Bank of India and AU Small Finance Bank, added the ET report.
The brokerage has a target price of ₹1,710 for HDFC Bank and ₹890 for ICICI Bank. Meanwhile, Axis Bank, SBI and AU Small Finance Bank, the brokerage has a target price of ₹970, ₹500 and ₹750, respectively, it added.
Meanwhile, BNP Paribas also has a buy on IndusInd Bank as well with a target price of ₹1,030 while having a hold call on Kotak Mahindra Bank and City Union Bank, ET said quoting the brokerage.
"Even though Axis Bank has the highest upside potential, our preferred order is HDFC Bank, ICICI Bank, and Axis Bank. Axis Bank's CASA percentage (current account savings account) is significantly lower than those of the other two banks and if the rate hardening cycle is either steeper or more protracted than expected, then its margin/growth choices will have less wiggle room than the other two," said BNP Paribas.
It also added that the long-term investment theme for banks remains intact as sector valuations are marginally above 10-year median levels in nominal one-year forward price-to-book terms.