Why BofA has a Buy on big four private lenders

BofA Securities has a ‘buy’ rating on the top four private lenders – HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank – citing strong earnings momentum and attractive valuations.

Analysts project that the four major private banks will continue to outperform through April-June quarter (Q1FY25), with earnings supporting net interest margins and credit flow staying robust, thus ensuring a stable outlook.

“The risk-reward scenario currently favours large-cap private banks in the near term. The recent rise in HDFC Bank’s stock is attributed to a stabilisation in expectations and positioning. Additionally, there is growing confidence in the FY25 earnings per share (EPS) for ICICI Bank, Axis Bank, and Kotak Mahindra Bank,” BofA Securities note said.

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Analysts anticipate that EPS upgrades for public sector banks (PSBs) should resume from Q2FY25 onwards. “We maintain a positive outlook on PSBs but do not foresee Q1FY25 as a significant catalyst for their stocks,” the brokerage note added.

Analysts see a balanced risk-reward situation for mid-sized banks.

In the past 3 months, shares of Kotak Mahindra Bank, ICICI Bank, Axis Bank and HDFC Bank have surged in the range of 1-20 percent, as compared to 10 percent rise in the benchmark Nifty 50 index during the same period.

Earlier, global ratings agency Moody’s too have come out with a favourable note, stating that Indian banks are estimated to register 12-14 percent credit growth over next 12-15 months as demand revives further.

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“Banks are well-placed to seize opportunities from the country’s strong economic prospects through lending growth in sectors such as infrastructure, energy transition, manufacturing, small businesses and retail,” Moody’s had recently said.

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