Investors need to be cautious
To begin with, as markets are just 1% away from historic highs, investors should exercise some restraint and not invest lumpsum amounts.
“It’s important to remember overall, equity markets have shown strong resilience even though it faces headwinds from the advent of a possible third COVID wave and persistent inflation readings prompting a potential rate increase. Restrictions this time around was localized and less stringent v/s the lockdown in CY20 leading to positive macro data points both on global and domestic front which is giving confidence to the investors of economic rebound. Hence it would be a tough fight between the Bulls and Bears in the coming days and one needs to remain watchful of possible movement in either direction,” Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.
Motilal Oswal places a “buy” on the stock of ICICI Bank
Most brokerages are optimistic on the large private sector banking space and see HDFC Bank and ICICI Bank as the top stock buys.
According to Motilal Oswal, deposit traction would remain healthy for the banking sector, reflecting 10% YoY growth for the system, with banks focusing on ramping up retail deposits. Most banks indicated rates to have bottomed out.
The brokerage believes that ICICI Bank has substantially increased its PCR to 78% (one of the highest in the industry) and carries unutilized COVID-related provisions of Rs 75 billion (1% of loans).
“Slippages were controlled, while the restructuring book stands lower 0.54% of loans providing comfort on asset quality. While near-term challenges would persist, we believe that is well-cushioned with higher provisions on the balance sheet. Thus, we estimate credit costs to moderate to 1.5% in FY22,” the brokerage has said.
“We estimate returns on assets and returns on equity 1.8% and 15.2% for FY23E. Adjusted for subsidiaries, the standalone bank trades at 1.9x FY23E ABV,” the bank has said.
Emkay Research has a “buy” call on ICICI Bank stock
Emkay Research too has a buy call on the stock of ICICI Bank in its report on the BFSI sector. “Better net interest margins trajectory and contained credit cost should lead to healthy profitability. Slippages to remain elevated, but still lower qoq ex of proforma NPAs,” the brokerage has said.
“We believe growth should gradually recover as the unlocking process accelerates, and meaningful asset-quality normalization could be seen in second half. We retain a positive stance on financials but recommend a bottom-up approach. Among banks, we prefer high-quality players like ICICI Bank, HDFC Bank, State Bank of India and Axis in large-caps. IIB is for investors with a long-term horizon,” Emkay Research said in its report.
Be circumspect
While it is easy to recommend a buy on stocks, investors need to be a little worried at where stocks are now. We have been telling investors to buy into stocks only on declines and in small amounts. Covid continues to be a challenge across the globe, as new variants seem to be emerging.
The Dow Jones crashed 725 points on Monday, and so did the Indian markets. Hence, a good idea would be to just buy into the markets on decline and not rush.
Disclaimer
Investing in stocks is risky and investors should do their own research. The author, the brokerage firm or Greynium Information Technologies Pvt Ltd is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.
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