Fears of a macroeconomic slowdown might have weighed in on banking stocks of late, the BSE Bankex has managed to beat the BSE Sensex by a good 10 percentage points in 2022 so far.
Analysts noted that banks have largely been reporting healthy credit growth, with the overall loan growth improving to 16 per cent YoY in August, led by retail and MSM segments. Payment activity has also seen a boost due to beginning of the festive season, they said.
Here’s how the three frontline banking stocks namely HDFC Bank, ICICI Bank and SBI stack up against each other:
Stock performance
Shares of private lender ICICI Bank have jumped 13.4 per cent while those of state-run SBI have delivered 13 per cent return to investors in 2022 so far. HDFC Bank stock has disappointed investors, with a 4 per cent fall. In the last one month, the three lenders have fallen up to 2.6 per cent.
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Consensus buys
All the three banking stocks are consensus buys with no ‘sell’ rating. SBI has 32 ‘strong buy’ recommendations, five ‘buy’ and one ‘hold’ call, publicly available data with Trendlyne suggests.
ICICI Bank, on the other hand, has 34 ‘strong buy’ recommendations and five ‘buy’ calls, Trendlyne data suggests. Despite its tepid show, HDFC Bank too is a ‘buy’ for analysts. As per Trendlyne data, the stock has 31 ‘strong buy’ ratings, one ‘buy’ and four ‘hold’ ratings.
What analysts say
Gaurav Jani of Prabhudas Lilladher said SBI is optimistic on loan growth, as improving economic activity and tight liquidity may support its credit offtake. Asset quality may remain under control, he said, adding that the bank is targeting to keep credit costs below 1 per cent. The analyst has raised its target on the stock to Rs 650 from Rs 620.
Nomura India believes that over the medium term, a well-capitalised balance sheet, improving loan growth and lower credit cost forecast would be positive catalysts that should allow valuation multiples to improve for bank stocks.
In this context, it sees three narratives to work going ahead. Among them is the CASA-dominant compounding franchises such as ICICI Bank and HDFC Bank. Among the two stocks, Nomura prefers the former, even as it has ‘buy’ rating on both the stocks. Nomura finds SBI fit for the third narrative i.e. lower credit cost.
Nomura values ICICI’s core banking business at Rs 840 (3.0 times P/B), contribution of its life Insurance business at Rs 71, general insurance at Rs 36, asset management at Rs 30, securities at Rs 21 and balance at Rs 5, to arrive at a target of Rs 980. The same brokerage has a target of Rs 615 for SBI.
Target prices
If one goes by average price targets, HDFC Bank holds highest upside potential. The average target price on HDFC Bank, as per Trendlyne, stays at Rs 1,853.18, which suggests a potential 27.54 per cent upside for the stock. For SBI, the average target price at Rs 644.85 suggests a potential 21 per cent upside. ICICI Bank has the lowest upside potential among the three, as per Trendlyne. This stock has an average price target of Rs 975.50, suggesting a upside potential of 12.43 per cent.