HDFC Bank, Kotak Mahindra Bank, Axis Bank: ICICI Securities Prefers Large Caps Over Mid-Sized Private Banks — Check Target Prices

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ICICI Securities Report

Maintain positive stance on the sector; prefer large private banks

While the brokerage acknowledges the current situation, which has an implication on growth, NIM as well as asset quality, it believes that banks' balance sheets are well cushioned and credit growth would partly be offset by inflationary hardening.

It believes the current gas unavailability and Middle-East situation may not alter the broader improving trajectory in retail unsecured and wholesale segment, though the brokerage is closely monitoring situation for SMEs, which are more leveraged to the global macros.

In summary, ICICI Securities believes that overall asset quality should remain comfortable, though there may be few pockets of stress. However, stocks are already discounting much of this, with the banking index declining 15% since the beginning of the war.

The brokerage maintains its positive stance on the banking sector. While NIM recovery seems to have been pushed out due to sharp rise in short term deposits rates, it believes NII growth has bottomed out. Loan growth is a key monitorable, though it has been holding up reasonably well.

ICICI Securities finds risk-reward attractive for large private banks. 

Post the correction, the brokerage see attractive risk-reward for most of the banks and prefers HDFC Bank, Kotak Mahindra Bank and Axis Bank(each rated Buy) over mid private banks such as Federal Bank/ IDFC First Bank (rated Add) and IndusInd Bank/Yes Bank (rated Hold).

From the quarter's perspective, the brokerage sees strong results from HDFC Bank on both growth and NIM. Additionally the brokerage sees strong loan growth and asset quality outcomes for Axis Bank though it may see relatively higher NIM compression.

The brokerage sees healthy decline in credit cost for Kotak Mahindra Bank but it may see trade-off between loan growth and NIM. RBL (Buy) may see strong business growth but elevated credit card slippages, though RBI's approval for the Emirates deal could enable a swift re-rating.

ICICI Securities see healthy upside for Bandhan (Buy), though would monitor the situation in its home state, which are undergoing Assembly elections.

The brokerage recently upgraded City Union Bank to Buy and also maintain Buy on Karur Vysya Bank, DCB and SIB.

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