Are you a long-term investor and looking for some investment bets in the domestic equity markets? Religare Capital Markets has three stocks to suggest for a time horizon of three years – YES Bank, ICICI Bank and Kotak Mahindra Bank. The brokerage house is positive on selected small-to-midsize private banks that are structurally fortifying their balance sheets and are in a sweet spot to corner market share from public banks. Shares of YES Bank, ICICI Bank and Kotak Mahindra Bank were trading 0.61 per cent, 1.20 per cent and 1.15 per cent up at Rs 1371.05, Rs 260.80 and Rs 816, respectively, (at 10.50 am).
For the quarter ended June 30, 2016, ICICI Bank reported net profit of Rs 2232.35 crore, down 25 per cent, against Rs 2976.16 crore in the corresponding quarter a year ago. Consolidated net profit of Kotak Mahindra Bank jumped by 106.57 per cent to Rs 1067.10 crore for the quarter under review against Rs 516.57 crore in the same quarter last year year. During April-June period, net profit of YES Bank jumped by 32.76 per cent year-on-year to Rs 731.80 crore against Rs 551.20 crore in the same period last year.
Below are the investment rationale why Religare is bullish on YES Bank over IndusInd Bank, ICICI Bank over Axis Bank and Kotak Mahindra Bank over HDFC Bank:
YES Bank over IndusInd Bank: The structural shift underway at YES Bank will make its balance sheet more granular. Corporate risk at both banks is now evenly matched and YES’s added disclosures have boosted investor confidence.
ICICI Bank over Axis Bank: ICICI Bank has an advantage over Axis Bank on asset quality (adjusted watchlist is 4.3 per cent of loans for ICICI Bank against 5 per cent for Axis Bank). ICICI Bank is expected to benefit from the resolution of large stressed accounts and value unlocking of its subsidiaries.
Kotak Bank over HDFC Bank: The brokerage house expects incremental (and profitable) market share gains for Kotak Mahindra Bank to be higher than that for HDFC Bank over the next decade. A larger branch network and payment bank investment can drive high CASA and granularity in Kotak Mahindra Bank’s liability franchise. The ING Vysya merger will also unlock synergies.