In a recent report, Jefferies has provided a comprehensive analysis of the banking sector’s prospects for the year 2024. The report outlines key strategies and considerations for banks to navigate through various challenges and capitalize on growth opportunities.
As part of its recommendations, Jefferies identifies Axis Bank, ICICI Bank, IndusInd Bank, HDFC Bank, and State Bank of India (SBI), and more as top picks in the banking sector. These selections are based on their perceived strengths and growth prospects within the evolving market conditions.
Jefferies anticipates a more measured increase in personal loans in 2024. However, the report suggests that banks can offset this by capitalizing on broad-based growth, particularly in Small and Medium Enterprises (SME) and housing sectors. This diversified approach aims to ensure sustained lending activities despite the potential slowdown in personal loans.
The report forecasts a notable uptick in capital expenditure (Capex) with a projected growth rate of 15%. This surge in Capex is expected to stimulate economic activities and provide banks with additional avenues for lending, contributing to overall sector growth.
Acknowledging the challenges, Jefferies highlights the need for banks to navigate through a period of slower deposit growth. The report underlines the importance of effective management strategies to counterbalance this trend and maintain stability in the banking sector.
The report anticipates a potential 50 basis points (bps) cut in interest rates post-election, coupled with potential disruptions in Public Sector Undertakings (PSUs). Jefferies suggests that banks should prepare for these changes and implement strategies to mitigate short-term disruptions.
Jefferies emphasizes the significance of operational levers and maintaining low credit costs. These measures are expected to enhance overall efficiency and profitability for banks, enabling them to navigate through the evolving economic landscape.
The report suggests that banks should deploy capital selectively, aligning their investments with strategic growth areas. This approach allows banks to optimize their resources and enhance their overall financial health.
Jefferies identifies attractive valuations in the banking sector, particularly for institutions exhibiting robust growth potential and high Return on Equity (RoE). This observation suggests potential investment opportunities for discerning investors.
Here are the top picks of Jefferies in the banking sector
AXISBANK (Axis Bank Limited)
BUY | CMP: 1098 | TARGET: 1380 | Rating: BUY
ICICIBANK (ICICI Bank Ltd)
BUY | CMP: 1001 | TARGET: 1250 | Rating: BUY
INDUSINDBK (Indusind Bank Ltd)
BUY | CMP: 642 | TARGET: 800 | Rating: BUY
HDFCBANK (HDFC Bank)
BUY | CMP: 1700 | TARGET: 2100 | Rating: BUY
SBIN (State Bank Of India)
BUY | CMP: 642 | TARGET: 810 | Rating: BUY
KOTAKBANK (Kotak Mahindra Bank Ltd)
BUY | CMP: 1910 | TARGET: 2050 | Rating: HOLD
BANDHANBNK (Bandhan Bank Ltd)
BUY | CMP: 244 | TARGET: 290 | Rating: BUY
PNB (Punjab National Bank)
BUY | CMP: 98 | TARGET: 90 | Rating: HOLD