Global brokerage house Morgan Stanley is bullish on top private-sector lenders ICICI Bank and HDFC Bank. In fact, both are its top picks in the space, though its base case is for a fairly weak financial sector in 2020.
The research house feels loan growth will be slow and non-performing loans (NPL) formation will be elevated. "Banks and NBFCs will struggle to improve balance sheet and profitability," it said.
It is underweight on Yes Bank, RBL Bank, IDFC First Bank, Federal Bank and state-owned banks (Ex-SBI) and among non-banks, it is underweight on Indiabulls Housing Finance and PNB Housing Finance.
Morgan Stanley does expect ICICI Bank to return 48 percent (at Rs 775 per share) in next one or two years, as large lenders are at the start of a super-normal profit cycle.
"Macro is tough but RBI/the government is taking steps that support the system and drive up profits for good lenders. EPS (earnings per share) and return on equity are set to improve. ICICI is particularly well placed, given earnings upside and valuations," it said.
Among others, the brokerage is bullish on real-estate investment trust Embassy REIT. It has overweight call on the stock, with a target price at Rs 437, implying a 3 percent upside from current levels.
"Upcoming project completions (1.4 million square feet) in second half of FY20 are on track and right of first offer (ROFO) assets provide sufficient growth visibility in ensuing years," it said.
Employee ESOPs are under review and should be finalised over few quarters, it added.
The brokerage also has overweight rating on Grasim Industries, with a target price of Rs 875, implying a 14 percent upside from current levels.
"The reduction in holding company discount will be a bigger stock price driver, though standalone business is facing challenging conditions and could see 10-12 percent downside risks to earnings," it said.
Among telecom stocks, Morgan Stanley is bullish on Bharti Airtel, as it feels that the tariff hike is a step in the right direction.
Average revenue per user (ARPU) in FY21 will likely see substantial improvement, said the brokerage, which sees a possible ARPU path towards Rs 180-200 over the next few years.
It has an overweight call on the stock, with a target at Rs 530, implying a 19 percent upside from current levels.
Airtel has already rallied 20 percent in the last one month and 60 percent in the last one year amid an increasing subscriber base, improved operating performance of domestic as well as Africa business, tariff hike and hope of relief from government in spectrum payments.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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