Why experts view banking stocks as good bets in current market? Brokerage lists SBI, ICICI Bank and Axis bank as top picks
The Indian market has been trading with extreme volatility over multiple headwinds, especially sourcing weakness from the global markets (the US), for the past few months
The Indian market has been trading with extreme volatility over multiple headwinds, especially sourcing weakness from the global markets (the US), for the past few months. In the past three months, benchmarks Nifty50 and Sensex have declined nearly six per cent each.
Speaking on the correction, Sorbh Gupta, Fund Manager- Equity, Quantum AMC, says equity investors who have invested in equity markets in the last two-three years have seen mostly positive returns & a swift recovery after every correction.
"The current volatility & slow grind of the markets will test their patience. The new-age investors need to reset their expectations & also understand that equity investing is a long-term game. They should have a 3-year + view while investing in equities," says Gupta.
Meanwhile, the volatility has also led to huge profit booking in the broader market and affected almost all sectors alike. However, experts believe banking and financial stocks are better poised to give good returns than others in the long run. As on June 15, S&P BSE Bankex declined over four per cent, while Nifty Bank dipped nearly five per cent in the past one month
A sustained upward move in the market is possible only when the FPIs substantially reduce selling, says says V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"The only sensible investment strategy in this scenario is to slowly accumulate high quality stocks whose prices are depressed not because of poor fundamentals, but sustained FPI selling. Financials, particularly leading private sector banks, have the potential to give market beating returns for investors with a one-year perspective," the expert adds.
As per ICICI Securities, Bank credit sectoral deployment data for Aprill 22 suggests YoY uptick across all verticals –14.7% in retail credit, 11.1% in services, 10.6% in agri portfolio and 8.2% in industry.
Companies which are heavily leveraged will be impacted on a medium-term basis due to the interest rate rising cycle, says Vinod Nair, Head of Research at Geojit Financial Services
"The banking sector, being neutral to rising interest rate cycle for a growing economy is our top recommendation, coupled by factors like robust credit growth, lower stress, strong liquidity position and attractive valuation," he said on why banking sector is his top recommendation.
Meanwhile, based on a positive outlook for the sector, brokerages have picked three stocks from banking space that could clock up to 50% return in one year.
State Bank of India (SBI)
Brokerage house ICICI Securities maintained a buy rating on the public sector bank with target price of Rs 673. " From ‘Enterprising bank, enduring enterprise’ in FY20 to ‘Resilience, People, Technology’ (as pillars of future growth) in FY21, State Bank of India’s (SBI) FY22 annual report is themed ‘Setting new standard in banking excellence’ focusing on productivity, adaptability, sustainability and inclusivity," it said while picking SBI.
Saying SBI is well poised to sustain the growth momentum, Motilal Oswal maintained a "buy" with target price of Rs 600.
SBIN has delivered a strong FY22 propelled by steady business / revenue growth and controlled provisions, said the brokerage. "A higher mix of floating loans and CASA mix will support margin in a rising interest rate environment. Asset quality performance has been strong and the outlook remains healthy as restructured book remains in control," it added.
ICICI Bank
Global brokerage firm Nomura maintained a buy call on ICICI Bank with a target price of Rs 960. Credit Suisse has an outperform rating on the private sector lender's stock with Rs 870 target.
Axis Bank
Maintaining an attractive view of the industry, Morgan Stanley gave an overweight rating on Axis Bank with a target price of Rs 910. It maintained that the stock has been trading volatile, but this should change. " Asset quality is robust, balance sheet and revenue granularity have improved, tech investment has picked up and growth is accelerating, it said.
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