Although the market was volatile, the banking sector attracted investor interest. The Nifty PSU Bank and Private Bank indices have gained between 8 and 9% over the past month compared to the benchmarks, which are up around 6.5% each. Independently, PSU Bank has gained around 5% over the past week against a flat to negative return by benchmarks over the same period.
Analysts and brokerages have been optimistic about the outlook for the banking industry going forward. In August, bank credit growth fell from 14% to 14.5%, while long-term loans also spiked due to rising interest rates. Additionally, due to constant currency fluctuations, businesses rely more on domestic rates than on foreign interest rates.
According to global brokerage Macquarie, financial sectors are more attractive than other sectors.
Private sector banks are expected to register a solid CAGR of 20% of EPS for the next three years, he said. Strong loan growth, improving margins and low credit costs are driving EPS, the global broker said.
While picking HDFC Bank and ICICI Bank as preferred stock picks, he said IndusInd Bank could be a “dark horse” of this space.
Here’s how Macquarie assesses and targets prices for ICICI Bank, HDFC Bank, IndusInd Bank, Kotak Mahindra Bank and Axis Bank
Macquarie on ICICI Bank (CMP: 872)
Maintain outperformance, target raised to Rs 1050 against Rs 1000
Macquarie on HDFC bank (CMP:1465)
Maintain outperformance, Rs 2005 target
Macquarie on IndusInd Bank (CMP: 1090)
Maintain outperformance, target raised to Rs 1400 from 1135
Macquarie on Kotak Mahindra Bank (CMP: 1869)
Maintain Neutral, Objective 1860
Macquarie on Axis Bank (CMP: 743)
Hold neutral, target 790
ICICI Bank, in its BFSI coverage, said banks’ operating performance in the first quarter of FY23 maintained an optimistic stance on the outlook for anticipated growth and cost of credit. Some of them are lacking income due to the success of MTM and increasing operating costs. “NIMs just held up (relative to expectations for improvement) as the upward repricing of EBLR/MCLR loans will likely take a 3-6 month reset period to be fully reflected in yields. NII. Core operating profit increased 17% year-on-year,” he added.