Broad-based strength: BNP Paribas picks 3 bank stocks

Citing the shift of loan growth from mortgages, personal loans, credit cards and prime corporate loans to higher-touch segments such as CV/CE and SME, brokerage firm BNP Paribas' top picks with a buy rating are HDFC Bank, ICICI Bank and Axis Bank.

"In the early part of FY23, growth was led by strength in low-touch, urban, data-rich, white-collar retail product segments such as mortgages, personal loans, credit cards and prime corporate loans. By 2QFY23, a shift was visible as higher-touch segments such as CV/CE, SME and rural started to report a growth pickup," said the brokerage firm.

"We expect this trend to have gathered more steam in 3QFY23 as banks’ confidence in these product segments increased due to encouraging macroeconomic data despite reasonably tight monetary and liquidity conditions. For this reason, our top picks in order of preference remain HDFC Bank, ICICI Bank and Axis Bank," it added.

The brokerage also stated that asset-specialist plays such as IndusInd Bank, AU Small Finance Bank and City Union Bank have the greatest possibility of delivering positive surprises driven by credit growth.

"Credit growth continues to be on a tear despite monetary policy changes, as evidenced by both system growth at 17.4% YoY and early disclosures by HDFC Bank, IndusInd Bank and AU Small Finance Bank. We expect a clear shift in the segmental texture of loan growth too," the brokerage firm BNP Paribas said.

Here are BNP Paribas' top preferred bank stocks

HDFC Bank
The brokerage has a buy rating on HDFC Bank with a target price of Rs 2,030, which signals an upside potential of 27% from the current market price of Rs 1,600 per share.

"Key downside risks are macro risks of the inflation-interest rate-GDP growth dynamic. HDFC Banks’ provisioning adequacy is heavily dependent on the fact that its stressed asset numbers are the very lowest in the sector. If this were to change for any reason, the provisioning burden on RoA will be high. However, such a change is very unlikely given the focus on prime assets," the brokerage firm said.

ICICI Bank
BNP Paribas has a buy call on ICICI Bank Bank with a target price of Rs 1,070, implying an upside potential of 23% from the current market price of Rs 873 per share.

"Macro risks of the inflation-interest rate-growth dynamic are key. Execution on asset quality will remain critical to the re-rating process," it said.

Axis Bank
The brokerage firm BNP Paribas has a buy call on Axis Bank with a target price of Rs 1,130, indicating an upside potential of 21% from the current market price of Rs 934 per share.

"Key downside risks are macro risks of the inflation-interest rate-growth dynamic. A protracted high interest-rate cycle is a greater risk to Axis Bank than to large private peers, in terms of potential market share loss in prime credit," it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)