YES Bank, HDFC, ICICI Bank, SBI shares: Buy, hold or sell? Targets, US investor takeaways

Investec, which met 16 institutional investors across the US in late October and early November, said sentiment towards Indian financials had turned more constructive following the US midterm election results, with several investors looking to increase their India exposure.

US investors cited several positive tailwinds for India, including falling crude oil prices, a stabilising rupee, recent underperformance of competing emerging markets, some unwinding of AI-related themes and reasonable valuations, Investec said.

Following the discussions, Investec said it continued to maintain a 'value' bias amid broad-based sector strength. Among large private banks, its top picks were ICICI Bank and Axis Bank, while State Bank of India, Union Bank of India and Indian Bank were its preferred PSU picks. Among mid-sized banks, its top picks included IDFC First Bank, AU Small Finance Bank and Ujjivan Small Finance Bank. It was also constructive on Paytm.

Among the stocks, YES Bank Ltd and IndusInd Bank are the only two 'Sell' calls with targets of Rs 15 and Rs 815 respectively. HDFC Bank is a 'Hold' with a target of Rs 840. ICICI Bank and Axis Bank are rated 'Buy' with targets of Rs 1,705 and Rs 1,540. State Bank of India's target is set at Rs 1,250.

Investec said its discussions covered large banks such as ICICI Bank and HDFC Bank, as well as mid-sized and smaller lenders. Paytm also attracted interest across several meetings, while Multi Commodity Exchange of India (MCX) and BSE featured positively in discussions on the exchange sector.

"Our roadshow was a tale of two halves, with the first half of our meetings (before the US midterm election results) seeing relatively muted investor interest in Indian banks. Investors cited elevated global yields and tightening liquidity conditions, along with scepticism over the sustainability of strong asset quality trends amid rising household leverage. However, we sensed a change in this sentiment following the midterm results in several long-only client meetings," Investec said.

Investec said it found general recognition of the banking system's broad strength in return on equity (RoE) and continued strong loan growth trends. However, investors also broadly agreed with concerns over the increasing 'utility-fication' of larger banks and a general lack of differentiation among them amid broad-based sector strength.

"Yet, we did pick up positivity for large banks, with tailwinds from the recently initiated rate hike cycle and a preference to play these through names such as ICICI Bank (Buy) and HDFC Bank (Hold). We also picked up an openness to add exposure to small and mid-sized lenders, including NBFCs, as stronger growth plays amid easing liquidity, G-sec yields and potentially fuel prices," it said.

Investec said incremental investor concerns were broadly focused on steadily rising household leverage, worries over the recent sharp growth in gold loans by banks and NBFCs, and the asset quality fallout from drought-related concerns.

"We picked up broad-based investor interest in Paytm. It is viewed by many investors as a differentiated business model with a strong moat in financial services distribution, strong operating leverage and AI services optionality," Investec said.