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HDFC Bank, AU Small Finance among banking stocks to buy; analysts see up to 50% potential rally

Analysts have been suggesting sticking to stock-specific trade while headline indices remain stuck in a tug of war between bulls and bears.

Stocks to buy
Bank Nifty was closing in on the 35,000 mark. (Image: REUTERS)

Benchmark indices Sensex and Nifty 50 were trading with gains on the weekly futures & options expiry session on Thursday. S&P BSE Sensex rose more than 300 points to breach 53,800 while Nifty 50 regained 16,000. Domestic markets along with global markets have been trading volatile recently amid multiple headwinds including inflation, rising interest rates, and crude oil prices. Analysts have been suggesting sticking to stock-specific trade while headline indices remain stuck in a tug of war between bulls and bears. Bank Nifty was closing in on the 35,000 mark. Angel One has picked three banking stocks that investors can buy. These include HDFC Bank, Federal Bank, and AU Small Finance Bank

HDFC Bank: BUY
Target price: Rs 1,700 per share
Upside: 25%

HDFC Bank is the largest private sector lender in the country with a loan book of Rs 13.68

lakh crore in Q4FY2022 and a deposit base of Rs 15.6 lakh crore. HDFC Bank share price is down 10% so far this year to now trade at Rs 1,360 per share. The target price set by Angel One translated to an upside of 25%.

Analysts said that while operating numbers of HDFC Bank were below expectations, the lender posted an improvement in asset quality as GNPA/ NNPA reduced by 9/5bps QoQ to 1.17% and 0.32% of advances. “Restructured advances at the end of the quarter stood at 1.14% of advances. Given best-in-class asset quality, and an expected rebound in retail credit growth we are positive on the bank given reasonable valuations at the 2.3xFY24-adjusted book, which is at a discount to historical averages,” they said.

AU Small Finance Bank: BUY
Target price: Rs 848
Upside: 50%

The bank is a small finance lender with a loan AUM of close to Rs 47,831 crore at the end of the January-March quarter. “It has a well-diversified geographical presence across India. AU has very high exposure to high margin retail business, which accounted for 80% of AUM at the end of FY2022,” Angel One said. So far this year, the stock has gained 4.6%, outperforming the benchmark indices. The stock now trades at Rs 565 per share, hinting at 50% upside to the target price. 

“Reducing cost of funds will also help NIM expansion going forward. We believe that the worst is over for the bank and expect continued improvement in asset quality in FY2023, which should lead to a rerating,” the brokerage firm said. 

Federal Bank: BUY
Target price: Rs 120
Upside: 22%

Federal Bank had advances total of Rs 1.45 lakh crore and deposits of Rs 1.81 lakh crore at the end of March 2022. In the previous quarter, Federal Bank posted a good set of numbers as NII/ advances increased by 7.4%/9.9% YoY. Provisioning for the quarter was down by 10% from the previous year because of which net profit was up by 13.1%. Shares of Federal Bank have zoomed 12.67% so far this year. The target price of Rs 120 suggests another 22% upside. 

“Overall asset quality for the quarter improved in Q4FY22, which was in line with our expectations,” Angel One said. “We expect asset quality to improve further in FY2023 given normalization of the economy. We expect the Federal bank to post NII/PPOP/PAT CAGR of 24.9%/29.1%/42.7% between FY2022- 24 and remain positive on the bank,” they added.

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