3 Banking Stocks To Buy For Potential Upside Of Upto 31% That Feature As Angel One Top Picks For August 2022

Brokerage firm Angel One comes up with its top stock picks month on month. In its latest report, it says that the July month saw good recovery with the Indian markets posting around 10% recovery similar to most global markets. This was largely given the steady flow of decent quarterly numbers and the reversal of trend in relation to FII activity. In the July month as against the preceding nine months, FIIs turned net buyers in Indian markets to the extent of Rs. 4989 crore.

Further the brokerage firm adds that India is better positioned in contrast to the global economy. The inflation situation in the country is moderating on a month on month basis as well as the economy is showing signs of resilience. This is as depicted by growth in manufacturing activity, GST collection of Rs. 1.49 lakh crore, strong CV sales and 18% YoY increase in e-way bill generation in July 2022.

Limited Upside Seen For Nifty; Long Term Prospects Intact, Says Angel One

The brokerage firm goes on to say that "Post the recent rally, the NIFTY now trades closer to its long-term average 1yr- Forward P/E of 20x which we believe presents limited upside in the current scenario. However, the long-term prospects remain intact given the low corporate leverage levels, the better position of financial institutions, and the revival of investment cycle in India".

So, given this background, the brokerage firm has recommended to buy 3 banking stocks for decent gains of up to %.

Stock	Last traded price	Target price	Potential Upside
Federal Bank	109.7	120	9.39%
HDFC Bank	1468	1700	15.80%
AU Small Finance Bank	647.15	848	31%

Federal Bank

It is among the country's leading old-generation private sector lender. In the Q4 period, it posted decent results as NII/ advances grew by 7.4%/9.9% YoY. Provisioning for the quarter was down by 10% YoY as a result of which PAT was up by 13.1% YoY. GNPA and NNPA ratio improved to 2.80% and 0.96%.

At the March ended quarter of Fy2022, the bank's advances were at Rs. 1.45 lakh crore and deposits of Rs. 1.81 lakh crore. Notably the bank has predominantly secured loan book which contained asset quality issues.

"We expect asset quality to improve further in
FY2023 given normalization of the economy. We expect the Federal bank to post NII/PPOP/PAT CAGR of 24.9%/29.1%/42.7% between FY2022- 24 and remain positive on the bank", mentions the brokerage.

HDFC Bank

The country's largest private sector lender has advances to the tune of Rs. 13.68 lakh crore in Q4FY2022 and deposit base of ₹ 15.6 lakh crore. The banks loan book is very well spread out with wholesale accounting for nearly57% of the total loan book while retail constituted the balance portion.

In the Q4 period of Fy22, the bank's results were below estimates as there was a shift in portfolio mix towards corporate that led to a decline in NIM which reduced QoQ to 4%. Also "higher opex dragged down PPOP growth. The bank posted NII/PPOP growth of 10.2%/5.3% for the quarter on the back of loan growth of 20.8% YoY", notes the brokerage.

So while operating numbers were below expectations, the bank posted an improvement in asset quality. Thus considering the best in class asset quality, expected rebound in retail credit growth, the brokerage is bullish on the bank given reasonable valuations at 2.3xFY24, adjusted book which is at a discount to historical averages.

AU Small Finance Bank

The leading SFB has a total loan book of around Rs. 47831 crore at the March ended quarter of Fy22. The bank has a considerably higher exposure to high margin retail business that accounted for 80% of the loan book. The company has reported strong numbers in the Q4 period as its asset quality improved with contraction in GNPA/NNPA. NII growth came in at 42.8% during the quarter given the robust growth in advances on a YoY basis, while NIM was placed at 6.3%.

"We expect AU SFB to post robust NII/PPOP/ PAT CAGR of 35.2%/40.2%/38.7% between FY2022-24 on the back of AUM CAGR of 34.8%. Reducing cost of funds will also help NIM expansion going forward. We believe that the worst is over for the bank and expect continued improvement in asset quality in FY2023, which should lead to a rerating", notes the brokerage.

Disclaimer

The above stocks are recommended by Angel One as its top stock picks for August 2022. Readers should not construe the story as an investment advice into the above stocks and should engage in their own due diligence before betting on market-linked securities.