With the earnings season just around the corner, BofA has put out a fresh note on ICICI Bank and HDFC Bank, notably cutting the target price for both the large private banks, but maintaining a bullish call, citing both of them as resilience plays rather than growth bets.
BofA believes the recent price correction, particularly in the Nifty Bank index, which is down 14% over the past month, is overdone, with both HDFC Bank and ICICI Bank falling 16% and 12%, respectively.
The brokerage firm, nevertheless, acknowledged that the challenging geopolitical situation and macro headwinds could lead to softer credit growth, potential rate hikes and bring forth asset quality risks; it has cut target prices for both HDFC and ICICI Bank.
BofA maintained a 'buy' call on ICICI Bank but has cut the target price from Rs 1,750 to Rs 1,500. Similarly, the target price on HDFC Bank was cut from Rs 1,175 to Rs 950 despite maintaining the 'buy' call.
As a matter of fact, BofA believes the tide is shifting in the Indian banking space and given the current situation, it will be prudent to bet on resilience over growth, with value emerging on large banks. This is where ICICI Bank and HDFC Bank, two of the largest private lenders in India, takes the cake.
The brokerage firm has recommended a buy on both HDFC Bank and ICICI Bank on strong fundamentals as well as attractive valuations. It adds that the potential rate hikes may lead to an upside in net interest margins.x
Moreover, a healthy EPS trajectory is supported by loan growth normalisation, whereas potential NIM uplift and benign credit costs make things even more favourable for these two private lenders.
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