HDFC Bank, ICICI Bank, Bank of Baroda shares: Why analysts are bullish on these bank stocks

HDFC Bank is a Macquarie buy idea and a top pick in the sector. The brokerage has maintained an 'Outperform' rating on HDFC Bank, with a target price of Rs 2,110 per share.

Following interactions with the management, Macquarie said that lower credit costs will drive return on assets (ROAs) for the merged entity in the second quarter to around 1.9 percent. Pre-provision operating profit (PPOP) growth will be weaker on account of higher opex and near-term pressure on margins, the brokerage said.

ICICI Bank: Upside 41%

Morgan Stanley gives an 'Overweight' rating on ICICI Bank, with a target price of Rs 1,350 per share, implying a further upside of 41 percent. The brokerage said the bank's loan growth remains strong and competitive intensity is high.

The bank's management has reiterated guidance of maintaining FY24 margin at levels similar to FY23, Morgan Stanley said. The Mumbai-headquartered lender also expects its operating leverage to play out over the medium term.

The bank's asset quality remains stable, with decent performance in the unsecured and MSME segments.

ICICI Bank is also looking to accelerate branch expansion during FY24.

Kotak Mahindra Bank: Upside 26.7%

Morgan Stanley gives an 'equal-weight' rating on Kotak Mahindra Bank, saying loan demand across retail and SME segments remains healthy so far. MS has a target of Rs 2,250 per share on the counter, suggesting a potential upside of 26.7 percent from the current market levels.

Margin has improved during fiscal 2023, peaked in the fourth quarter of FY23 before moderating in the June quarter of this fiscal.

The lender's operating costs remain elevated given higher growth momentum and tech investments. Asset quality remains benign, the brokerage said.

Bank of Baroda: Upside 20.5%

Morgan Stanley has an 'Overweight' rating on Bank of Baroda, with a target of Rs 235 per share. This suggests a nearly 21 percent upside to the prevailing market prices.

According to Morgan Stanley, BoB's management has reaffirmed loan growth guidance at 14–15 percent year-on-year for this fiscal, slightly higher than the system's growth estimate.

"Margins will moderate due to the rising cost of funds, but this will be offset by improvements in the loan-to-deposit ratio, MCLR repricing, and a shift to higher-margin assets. Margin guidance remains at 3.3 percent for FY24," it said.

The brokerage expects outperformance in retail loan growth, driven by non-mortgage retail products.

As per projections, credit costs will remain below 1 percent in fiscal 2024, thanks to strong recovery flows. The expected credit loss of about 1 percent of loans is manageable through internal accruals.

Meanwhile, Indian equity indices opened marginally lower in Thursday's trade as the market turned excessively volatile responding to fast-changing incoming data. DIIs have been consistent buyers on the back of good flows to domestic mutual funds. But FIIs have been consistently selling in the cash market this month with a net sell figure of Rs 7,850 crore.

The BSE Sensex was trading 58 points or 0.089 percent lower at 65,822.19. Nifty50 was trading at 19,595.10, down 15.95 points or 0.081 percent at around 11.40 am. In the 12-stock banking index, 10 were trading positively with SBI, ICICI Bank, Kotak Mahindra Bank, Bank of Baroda, HDFC Bank and IndusInd Bank among the gainers.