Many stocks in the Indian banking sector have witnessed a sharp uptrend in the recent past. Mahesh Nandurkar, India Strategist at Jefferies said that India’s banking sector is looking good from the valuation standpoint currently. He believes that large-cap banks are looking attractive, and the banking sector stands out as a unique realm and currently trading at average valuations in comparison to its historical trends, in an interview with CNBC TV-18.
Here are a few banking stocks with an upside of up to 30 percent:
IndusInd Bank
IndusInd Bank is publicly held and provides a wide range of banking products and financial services to corporate and retail clients besides undertaking treasury operations.
Jefferies has a buy rating on the shares of IndusInd Bank with a target price of ₹ 1,750.00. This represents an upside of 25.25 percent, compared to its share price of ₹ 1,397.25.
Jefferies believes that IndusInd Bank is on track to deliver a turnaround in ROA as it continues to improve its core franchise with a focus on building domain specialisation to ramp up on liabilities (NRI, HNI, wealth) and loans (new vehicle loans, micro-banking and SME).
It added that the bank has a dominant position in segments like commercial vehicles, microfinance and diamond trade finance that form one-third of overall loans. It expects a 20 percent CAGR in loans over the next 3-5 years and plans to ramp up newer areas like housing, used-car, merchant financing, gold loans and business banking.
With a market capitalization of ₹ 1,06,486 crores, IndusInd Bank is a large-cap company. It has a low return on equity of 14.45 percent. Its shares were trading at a price-to-earnings ratio (P/E) of 13.42, which is higher than the industry P/E of 9.08, indicating that the stock might be overvalued as compared to its peers.
Axis Bank
Axis Bank is the third largest private sector bank in India. It offers financial services to customer segments covering large and mid-corporates, MSME, agriculture and retail businesses.
Jefferies has a buy rating on the shares of Axis Bank with a target price of ₹ 1,200.00. This indicates an upside of 26.12 percent, compared to its share price of ₹ 951.50.
The investment banker said that it had upgraded Axis Bank to one of its top picks, a few months ago, as it believes that the bank is on track to deliver higher growth and RoEs on a sustainable basis. It added that integration with Citibank’s India retail platform is progressing well with limited attrition among staff and customers and significant scope for synergies on revenues as well as cost.
With a market capitalization of ₹ 2,90,510 crores, Axis Bank is a large-cap company. It has a low return on equity of 8.72 percent. Its shares were trading at a price-to-earnings ratio (P/E) of 23.34, which is higher than the industry P/E of 9.08, indicating that the stock might be overvalued as compared to its peers.
ICICI Bank
ICICI Bank is one of the largest private-sector banks in India. It offers a diverse portfolio of financial products and services to retail, SME and corporate customers. This includes retail banking, wholesale banking, commercial banking, and treasury operations.
Jefferies has a ‘buy’ rating on the stock with a target price of ₹ 1240.00 apiece. This implies an upside of 29.82 percent as compared to its share price of ₹ 952.85.
ICICI Bank is among Jefferies’ top picks across Indian financials as it believes that the bank can sustain superior growth, better asset quality and higher ROEs. It added that the bank is well-poised to leverage on growth pickup led by deeper penetration and higher market share in urban micro-markets in metro and near metro areas.
With a market capitalization of ₹ 6,65,366 crores, ICICI Bank is a large-cap company. It has an ideal return on equity of 17.17 percent. Its shares were trading at a price-to-earnings ratio (P/E) of 18.14, which is higher than the industry P/E of 9.08, indicating that the stock might be overvalued as compared to its peers.
Written by Simran Bafna
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