The fourth-quarter earnings season is now drawing to a close and most significant lenders, that have reported their outcomes so far, have navigated by way of an incredibly complicated pandemic year with sturdy provisions. Domestic brokerage and investigation firm HDFC Securities, in a report, mentioned that banks in its coverage reported complete-year slippages at 2.1% through the fiscal year 2021. This is down from 2.5% in the economic year 2020. But now, lenders are gearing up to dodge the second wave of the pandemic, which has been more extreme, in term of loss of human life.
Who could be vulnerable?
HDFC Securities mentioned that its evaluation, based on impairment assumptions for the initially half of the existing economic year, suggests that banks that raised equity capital through the earlier year have constructed more than 50bps greater provisioning cushion than their peers. “Assuming a CET1 threshold of 12%, we identify mid-sized banks such as City Union Bank and Federal Bank within our coverage universe that may need to shore up their capital buffers,” HDFC Securities mentioned. They additional added that mid-sized banks are more vulnerable with higher geographical concentration threat in their loan portfolios compared to bigger banks.
What to acquire?
Axis Bank: The brokerage firm has a acquire rating on Axis Bank with a target price tag of Rs 758 per share. Since the middle of April, the stock has surged almost 15% to now trade at Rs 727 apiece. P/E(x) ratio is anticipated to come down from 33.1 to 17.1 this fiscal year.
Bandhan Bank: The lender has remained an underperformer so far this year. The stock is down 26% because January 1, to now trade at Rs 293 per share. However, HDFC Securities has a acquire rating on the scrip with a target price tag of Rs 413 apiece.
City Union Bank: Among HDFC Bank’s favoured scrips in the banking space, the stock is anticipated to surge to a price tag of Rs 198 per share from the existing Rs 173. The stock is down 4%, year to date but has gained 15% because the middle of April.
Federal Bank: The private sector lender has zoomed 28% because the starting of this year and HDFC Securities think there is additional upside possible. The bank trades at Rs 86 per share and the target price tag for the exact same is Rs 97 apiece.
ICICI Bank: The bank is amongst the most favoured bank stocks for HDFC Securities. ICICI Bank remains our major choose with a target price tag of Rs 649 apiece, the standalone bank valued at 2.1x March 2023 ABVPS. Our thesis is anchored on a sturdy balance sheet, comfy capitalisation, and consequent potential to disproportionately obtain industry share.
State Bank of India: The state-owned lender has skyrocketed 48% so far this year and now trades at Rs 412 per share. HDFC Securities mentioned that SBI presents an appealing threat-reward, specially due to its surprisingly sturdy asset excellent functionality. The brokerage firm has a target price tag of Rs 490 on the scrip.