HDFC Bank, ICICI, Axis are HSBC’s top financial bets

An attractive risk-reward combined with healthy fundamentals makes for a constructive case for Indian financials, said HSBC.

“A combination of extremely bearish market-implied return on equity/growth, upsides to stress case fair values, increasing attractiveness of India Financials versus other EMs and potential bounce-back when FII flows reverse points to very favourable risk-reward ratios for India financials,” said HSBC.

HSBC said that in December 2021, the relative price-to-earnings ratio of the banking index compared to the other emerging market financial indices was around one standard deviation above its long-term mean but the relative premium has corrected to between the long-term mean and minus 1 standard deviation versus most emerging markets.

In the past year, the Bank Nifty index has risen 5.44% and the Nifty Financial Services index has gained 7.2% while the Nifty has gained 16.2% in the same period.

Among the three bank stocks, HSBC sees the highest upside in ICICI Bank. The brokerage’s price target of ₹1,020 implies an upside of 43.5% from Monday’s closing price of ₹710.60. The lender’s strong capital position, wide branch network and execution in the non-mortgage part of the retail loan book position it well, it said.

HSBC’s target price of ₹980 on Axis implies an upside of 35% from Monday’s closing price of ₹726.40. The lender’s profitability should be supported by ahead-of-the-curve investment in branch expansion and the more granular exposure, said HSBC which has a buy rating.

The brokerage said HDFC Bank’s strong execution will help in market share. HSBC has a buy rating on the stock with a target of ₹2,020. It closed at ₹1,486.05 on Monday.