In the ever-evolving landscape of the banking and financial services sector, Motilal Oswal Financial Services is optimistic about a decent growth trajectory. Despite facing net interest margin (NIM) compression in the second quarter of FY24, the industry is expected to showcase resilient earnings.
Motilal Oswal Financial Services predicts robust systemic loan growth of 14% YoY in FY24, driven primarily by the Retail and SME segments. For the second quarter of FY24, it anticipates an impressive 22% YoY earnings growth within its banking coverage universe (excluding HDFC Bank).
Here are the top picks of Motilal Oswal in the Banking, Financial Services, and Insurance (BFSI) space:
1. ICICI Bank | Buy | TP: ₹1,150
ICICI Bank has consistently demonstrated strong growth and profitability in recent years, coupled with an increased provision coverage ratio (PCR) of approximately 83% as of Q1FY24, the highest in the industry. The bank’s focus on core operating performance, coupled with investments in technology and collaborations with new ecosystem players, is positioning it as a growth leader in the SME and Retail segments. Motilal Oswal predicts an 18% loan Compound Annual Growth Rate (CAGR) over FY23-25 and envisions room for re-rating, with estimated Return on Assets (RoA) and Return on Equity (RoE) of 2.2%/18.0% in FY25.
2. IndusInd Bank | Buy | TP: ₹1,650
IndusInd Bank showcased healthy performance in Q1FY24, with earnings growth of 30% YoY driven by strong net interest income (NII) growth of 18% YoY and reduced provisions. While margins have remained stable in recent quarters, advances growth has bolstered overall profitability. The bank maintains a market share of ~2% of net systemic advances, particularly excelling in vehicle finance and MFI segments. Under PC-6, IndusInd Bank is expected to achieve 18-23% loan growth, with an anticipated expansion of Return on Assets (ROA). Motilal Oswal’s ‘Buy’ rating on the stock comes with a target price of ₹1,650 per share, implying an almost 18% upside.
3. Bank of Baroda | Buy | TP: ₹240
Bank of Baroda, a public sector lender, has experienced a remarkable improvement in asset quality, driven by enhanced underwriting and improved collection efficiency. The bank’s retail book growth is projected to outpace total loan growth, positioning it to gain market share in the overall loan mix. While margin moderation due to rising deposit costs is expected, a healthy Current Account Savings Account (CASA) mix in the 40-42% range will help mitigate the decline. Motilal Oswal forecasts FY25 RoA and RoE of 1.2% and 17.1%, respectively. The stock is deemed attractive at 0.9x FY25E ABV.
4. SBI Life Insurance Company | Buy | TP: ₹1,570
SBI Life Insurance Company has witnessed steady premium growth across segments, with a 4% YoY growth in Individual WRP and flat YoY growth in Group WRP in 1QFY24. Both agency and bancassurance channels have contributed to this growth. Motilal Oswal anticipates a 20% APE CAGR over FY23-25, driven by continued momentum in Non-PAR and Protection products. Healthy persistency ratios and controlled cost ratios are expected, with a 19% VNB CAGR projected over FY23-25. The stock is estimated to achieve an operating Return on Embedded Value (RoEV) of ~21.3% by FY25.
In conclusion, Motilal Oswal’s stock picks in the BFSI sector offer potential opportunities for investors, reflecting the firm’s positive outlook on the growth and profitability of these companies.