Bank Nifty Crosses Over 48,000 Mark, Which Banking Stocks To Buy For Long Term?

Major banks like SBI, ICICI Bank, PNB, Bank of Baroda and IndusInd Bank are at record high levels, taking the Bank Nifty index to the over 48,000 mark for the first time. Amidst a strong bullish market, it is a good practice to place your bets wisely for fetching value returns going ahead. Shreyansh Shah, Research Analyst, StoxBox has identified a few banks which are attractive for buying on healthy growth trajectory.

On December 15, Bank Nifty touched a new all-time high of 48,219.95 before ending at 48,143.55, up by 411.25 points or 0.86%. Except for Axis Bank, Kotak Bank and AU Small Finance Bank, all other banking stocks ended higher. Bank Nifty's 30-day performance has been stronger in the year with gains of 8.92%, as per NSE data. This has led to an upside of 10.68% in a year for the index. {image-stockmarket600-1702778251.jpg www.goodreturns.in}

Talking about banking space outlook and top picks, Shah said, that though most of the large and mid-tier banks have guided NIMs to be on similar lines as FY23 ranging around 3.5%, we believe that it would be difficult for banks to achieve that, especially after the results of H1FY24. However, the NIM compression would be partially offset by treasury gains, which improved the yield due to interest rate hikes and high demand seen in the fixed-income markets. Also, other income is seeing healthy traction due to cross-selling opportunities by banks and robust growth in retail loans and credit cards. All these factors cumulatively will help banks to deliver healthy net profit in 2024.

That being said, Shah's top picks are HDFC Bank and City Union Bank.

For HDFC Bank, he said, "On the asset quality side, we feel all adjustments due to the one-off event of the merger and transition from IND-AS to I-GAAP have been taken care of in H1FY24. Going forward, due to the bank's legacy of healthy credit profiling, we do not see any further deterioration in its asset quality and expect it to be stable. In the last five years, earnings have grown at 17% CAGR while market cap growth is only 9% which implies significant PE rerating potential. Thus, we expect the stock to achieve a target of Rs. 2,300 per share in the long term."

It also needs to be noted that Bank Nifty surpassed the 48,000 mark last week on Friday after HDFC Bank shares surged in the last hour of the trade. HDFC Bank which contributes 30% to Bank Nifty, ended at Rs 1,656.05 apiece, up by 0.36%. This was after FTSE restructured its indexes, and increased its weightage in HDFC Bank shares. The largest bank in India will benefit heavily from the FTSE rejig as more funds inflow in the stock is likely.

In the case of City Union, Shah said, "Despite a slow start in H1FY24 compared to its peers, we are confident that the bank will achieve growth in mid-double digits in 2024. The bank currently trades at 1.2x FY25E book value and we value the stock at 1.4x FY25E book value to arrive at a target price of Rs 179 per share."

Further, Shah also shed light on PNB and Axis Bank shares. He said, "Although PNB's asset quality has seen significant improvement, it remains weaker as compared to Axis Bank. Additionally, PNB's return ratios remain subpar to the private lender on account of an increase in the operating cost and higher credit cost incurred by the bank during FY23 and H1FY24. Our pick amongst the two banks is Axis Bank as we expect it to perform well on the NIMs front in the forthcoming quarters due to its focus on premiumization, which it got from CITI's customers. Most of the high cost of integration with CITI Bank has been accounted for by the private lender in H1FY24 and we believe that the bank's profitability will deliver double-digit growth in future."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.