ICICI Bank, Axis Bank & IndusInd Bank among Nomura's top banking picks; downgrades AU Bank

Global brokerage firm Nomura is positive on select banking stocks but has downgraded AU Small Finance Bank. Nomura prefers banks with strong liability franchises, in an environment where deposits are a relative challenge, and strong RoA outlook, adjusted for valuations.

The brokerage firm continued to remain positive on the Indian banking sector on the back of decade low levels of deal loans, superior levels of return on assets (RoAs), cheaper valuations in terms of historic average and with bank capitalization levels and provision coverage at or near all-time highs.

ICICI Bank and Axis Bank are Nomura's top picks, while IIB is our key alpha idea, as a rare RoA expansion story going into FY24F, that is also well-hedged against possible interest rate cuts, said Nomura. However, it has downgraded AU Small Finance Bank to a non-consensus 'reduce' from 'neutral' as it sees the lender as the most expensive stock with the lowest RoE outlook in its coverage.

The brokerage is more positive on the private sector players as its sees that secular market share gains story of the private lenders from the PSU Banks continues to play out firmly. Nomura continues to remain positive on the lending space from a medium to long-term perspective, despite an uncertain macroeconomic outlook in the global macro backdrop.

Nomura has a 'buy' rating on Bandhan Bank with a target price of Rs 325, suggesting an upside of around 40 per cent in the stock. It also has a 'buy' for IndusInd Bank with a target price of Rs 1,600 on the stock, signaling a potential of a return of 27 per cent from the stock.

The brokerage sees an upside of about 20 per cent in HDFC Bank, ICICI Bank and Axis Bank as it has suggested to 'buy' the private lenders with target price of Rs 1,895, Rs 1,120 and Rs 1,160, respectively. Among the PSU space, it is positive on State Bank of India and Bank of Baroda with a 'buy' call and a target of Rs 680 and 230, respectively.

On the other hand, it remains 'neutral' on the Kotak Mahindra Bank with a target price of Rs 2,040, about 11 per cent higher from its price at Rs 1,840 on Friday, while it sees AU Small Finance Bank at Rs 650, down about 12 per cent from its latest price.

Also read: BofA Securities ups Paytm share price target to Rs 1,020 from Rs 885. Here's why

Also read: Adani Enterprises, 9 other Adani shares see Rs 55,000 cr in value erosion; group m-cap slips below Rs 10L cr mark