Macquarie bullish on banking sector: Picks HDFC Bank, ICICI Bank as preferred picks, says IndusInd Bank could be 'dark horse'- check target prices

Banking Sector Outlook: Though the market has been trading volatile, the banking sector has been attracting buying interest from investors.

Both Nifty PSU Bank and Private Bank indices have gained between 8-9% in the past one month

Though the market has been trading volatile, the banking sector has been attracting buying interest from investors. Both Nifty PSU Bank and Private Bank indices gained between 8-9% in the past one month against benchmarks, which rose around 6.5% each. Independently, PSU Bank has gained around five per cent in the past one week against flat to negative return by the benchmarks during the same period.

Analysts and brokerages have been bullish on the banking sector's outlook going forward. In August bank credit growth grew from 14% to 14.5%, while long-term loans also witnessed a spike due to higher interest rates. Also, due to consistent fluctuations in currencies, the companies are relying more on domestic rates rather than foreign interest rates.

As per global brokerage house Macquarie, financial sectors are more attractive in comparison to other sectors.

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Private sector banks are expected to report a strong 20% EPS CAGR for the next three years, it said. Strong loan growth, improving margins and low credit costs are EPS drivers, said the global brokerage.

While picking HDFC Bank and ICICI Bank as its preferred stock picks, it said IndusInd Bank could be a “dark horse” from this space.

Here is how Macquarie ratings and target prices for ICICI Bank, HDFC Bank, IndusInd Bank, Kotak Mahindra Bank and Axis Bank

Macquarie on ICICI Bank (CMP: 872)

Maintain Outperform, Target raised to Rs 1050 from Rs 1000

Macquarie on HDFC Bank (CMP:1465)

Maintain Outperform, Target Rs 2005

Macquarie on IndusInd Bank (CMP: 1090)

Maintain Outperform, Target raised to Rs 1400 from 1135

Macquarie on Kotak Mahindra Bank (CMP: 1869)

Maintain Neutral, Target 1860

Macquarie on Axis Bank (CMP: 743)

Maintain Neutral, Target 790

ICICI Bank, in its coverage on BFSI, said the Q1FY23 operating performance of banks maintained an upbeat stance on advance growth and credit cost outlook. Some of them earnings miss due to MTM hit and elevated opex. "NIMs just stayed put (as against expectations of improvement) as upward repricing of EBLR/MCLR loans will likely take 3-6 months reset period to fully reflect in yields. For Q1FY23, banks under our coverage reported ~16% YoY / 2% QoQ growth in NII. Core operating profit grew 17% YoY," it added.

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