Analyst Call Tracker | Banking, capex-driven plays surface as Street’s choice for September

India’s largest lender lender State Bank of India (SBI) topped the list of highest bullish calls last month at 47, followed by Axis Bank, ICICI Bank, HDFC Bank, and IndusInd Bank

Banking, financial services, and insurance (BFSI) companies continued to be the preferred picks among analysts in September as an exemplary capex cycle uptick kept credit growth on a strong footing.

As per Moneycontrol’s Analyst Call Tracker for September, more than half of the companies (six out of 10) which shared the maximum optimism with analysts belonged to the BFSI sector.

India’s largest State Bank of India (SBI) topped the list of highest bullish calls last month at 47, followed by Axis Bank, ICICI Bank, HDFC Bank, and IndusInd Bank. (See chart)

The long-term growth for banks, said analysts, look good, while peaked out net interest margin (NIM) and higher operating expenditures are expected to curtail profit after tax (PAT) growth in fiscal year 2023-24 (FY24).

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“We retain 100 basis points (bps) ‘overweight call on banks, owing to strong credit growth and improving asset quality,” analysts at Prabhudas Lilladher said.

Meanwhile, those at ICICI Securities asserted that SBI was in a sweet spot due to a comfortable asset quality picture, strong visibility of over 15 percent return of equity (RoE), and credit growth.

“We expect SBI’s credit growth to remain healthy at 13-14 percent YoY; deposit growth to be a shade lower and thus a boost to the credit deposit ratio. We maintain a ‘buy’ call on the counter, with an unchanged target price of Rs 730 apiece, valuing the stock at ~1.3x FY25E core banking book and ~Rs 200 per share of subs,” the brokerage firm added.

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The provisional figures by banks for the July-September (Q2FY24) quarter reported so far further lend support to analysts’ positive sentiments.

In the case of IndusInd Bank’s Q2 business update, loan growth increased to 4.5 percent sequentially, while deposits witnessed a moderate growth of 3.7 percent quarter-on-quarter (QoQ). This, thereby, resulted in a rise in the credit-to-deposit ratio to 87.5 percent.

India’s largest private sector lender – HDFC Bank, too, reported a 30 percent year-on-year (YoY) growth in deposits, as part of its Q2 business update.

At the bourses, shares of SBI, Axis Bank, and IndusInd Bank have gained in the range of 1-5 percent in a month, whereas ICICI Bank and HDFC Bank have dropped by up to 4 percent during the same period.

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Capex-driven stocks paint to a bright picture

That apart, Larsen & Toubro (L&T) saw 37 ‘buy’ calls, two ‘sell’ calls and one ‘hold.’

The company emerged as the only bet that investors picked to play in the construction sector amid the government’s strong thrust to infrastructure development and pick-up in private sector capex.

“L&T is well-placed to benefit in the long run given the uptick in domestic private capex, strong tender prospects, better order conversion in domestic markets, significant traction in hydrocarbons, and renewable energy orders from international markets like Saudi Arabia,” wrote analysts at Prabhudas Lilladher in a recent note.

Similarly, mining major Hindalco and power-focused NTPC shared common ‘buy’ calls of 24. The two counters are India’s largest plays in their respective fields.

For Hindalco, analysts were upbeat on the company’s hopes of easing cost of production which would lend sheen to the upcoming quarter.

On the other hand, for NTPC, the company’s aggressive expansion to renewable and hydrogen businesses made it a palpable bet among analysts.

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