BNP Paribas in its latest noted said the risk-reward in the large cap private banking space looks attractive. It said a deep correction in HDFC Bank Ltd and a lukewarm response to the positive surprise in ICICI Bank Ltd 's December quarter results make two of its top stock ideas look even more attractive now. Axis Bank is BNP Paribas' third-most preferred stock as the private lender remains most geared to liability easing.
HDFC Bank target price: Rs 2,410
HDFC Bank is BNP Paribas' top pick within the banking coverage. "Our estimates of key fundamentals, including ROA and ROE, build in a considerable margin of safety by assuming an accelerated timeline for PSL asset build-up, muted CASA momentum and no expected savings in operating cost from merger synergies. Despite these conservative assumptions, we see ROA touching 1.9 per cent by end-FY25 and ROE nearing the pre-merger steady state of 17 per cent by 2HFY26," BNP Paribas said.
ROA stands for return on asset and ROE for return on equity.
Against these, a valuation of 2.3 times Q3FY25E core book value per share (at deep discount to long-term average) does scarce justice to an FY26E core ROE of 17.1 per cent that compares favourably with HDFC Bank's pre-merger past five-year average.
ICICI Bank target price: Rs 1,310
In the case of ICICI Bank, BNP Paribas said the balance sheet remains protected by heavy excess provisioning and healthy capitalisation. ICICI Bank enjoys high CASA as a proportion of NDTL, and therefore, a funding cost edge over its nearest competitors, BNP Paribas said.
"This has helped the bank gather loan market share in prime categories and emerge as a preferred choice for investors within Indian banking names, in our view. The bank's tech and digital investment efforts appear to have set the benchmark among large private-bank peers. While the iMobile app's popularity provides us some evidence of the bank's tech and digital focus, its efforts span segments and functions," it said.
ICICI Bank's annualised ROE has broken through the 18 per cent barrier in recent quarters, partly aided by low credit costs. "It is trading at 2.3 times 1-year forward core P/BV and still is attractive vis[1]à-vis what we see as a sustainable core ROE of 15.5-16.5 per cent," BNP Paribas said.
Axis Bank target price: Rs 1,400
BNP Paribas said Axis Bank is poised to grab meaningful market share during the credit upcycle that it expects over the next few years, given its provisioning and capital buffering;
reasonably robust deposit franchise, albeit a notch below those of its best-in-class peers; commitment to gaining a technological competitive edge and 4) acquisition of Citigroup's India retail portfolio.
Besides, BNP Paribas cited Axis Bank's willingness to grow businesses such as rural and small business banking (SBB) that broad-base its loan growth potential.
"We are yet to build in any material monetary easing into our earnings estimates, but Axis Bank's margins should respond the fastest to expectations of easing, in our view. Its annualised ROE has broken through the 18 per cent barrier in recent quarters, partly aided by low credit costs. It is trading at 1.9 times 1-year forward P/BV valuations (on our revised estimates), which is quite attractive vis-à-vis what we see as a sustainable core ROE of 15-16 per cent," it said.
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