Axis Bank, ICICI Bank, other bank stocks to buy for healthy one-year returns

Stocks to buy: The reference heavyweight banking and financial services package once again fuels the progress of the Nifty50 benchmark. And this time, foreign institutional investors (FIIs) are flocking after the relentless sell-off in Indian stocks over the past 10 months. The banking index has performed slightly better than the benchmark 50-stock index over the past few weeks.

Bank stocks perform better than expected

Kush Ghodasara, CMT, an independent market expert, thinks bank stocks have fared much better than expected at the ground level, with the NIM rising for nearly all frontline banks. He added: “Second, the NPA has come down significantly which has had a positive effect on earnings. Third, credit growth picked up again as the economy recovered and wage security strengthened, leading to high spending on short-term loans. So fundamentally the sectors look stronger for the next two quarters. However, when it comes to prices, I think all the positives have been factored in and that’s why we’ve seen almost 15-20% upside across all bank stocks over the last 21 sessions.

Solid performance in the first quarter

Banks performed strongly on the back of healthy loan growth, reducing borrowing costs in the quarter ending June 30. “Slippages were slightly elevated for some banks, but the overall NPA showed improvement. NIMs showed varied performance across banks, but private banks showed an improving trend while public banks showed declining trends. NIMs depended on the pricing of assets and liabilities. In general, an asset with a higher EBLR will experience faster transmission. We like the big banks over the mid-sized banks in this regard. We expect the big banks to also do well in deposit mobilization,” said Hemali Dhame, Associate Vice President Research, Kotak Securities Ltd.

Top bank stocks to buy

Vikram Kasat-Head Advisory, Prabhudas Lilladher Pvt Ltd. recommend Axis Bank and DCB.

DCB – Target price Rs 120

Asset Quality Risk Is Easing Gradually – While profits have been missed on the NII (slower pass-through) and raw slippages (due to seasonality), the trends in both are expected to reverse. We remain positive on DCB as asset quality risks abate. Hold the multiple at 1.0x FY24 ABV with a target price of 120.

Axis Bank – Target price Rs 940

Re-scoring to build on sustained NIM strength. Improved QoQ asset quality with controlled net slippage and reduced stressed pool. Valuations at 1.7x on FY24 ABV are comforting and the discount to ICICIBANK should narrow as RoE could drop from 12.0% to 14.5%. Hold the multiple at 2.3x FY24 ABV and the target price at Rs 940.

Dhame said: “Our preference is for larger banks and mid-sized banks for higher risk appetite as cost of credit concerns are behind. We like ICICI Bank, SBI Bank, Axis Bank, Federal Bank.

The views and investment advice of the experts in this report are their own and not those of the website or its management. Users are advised to check with certified experts before making any investment decision.

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