Rerating 2.0? Motilal raises target prices of SBI, 5 other PSU bank stocks
SBI, Bank of Baroda, Indian Bank, Union Bank, Canara Bank, and PNB.
«A reflection on PSBs valuation history may cause trading multiples to look constrained, however the quality of earnings, growth outlook and broader re-rating in PSU entities will nevertheless enable steady performance of the sector,» Motilal analysts including Nitin Aggarwal said.
Stating that PSBs are likely to report a 10% CAGR in deposits over FY23-26, Motilal said most PSU banks are well positioned in terms of liquidity, with their LCR well above the regulatory requirement of 100% (135-160%), indicating their resiliency and the competitive advantage they have over their private peers, especially in the current rate environment.
The analysts noted that overall, PSBs have been able to maintain better margins as a significant proportion of their loans are linked to MCLR (6-12 months’ tenure), which has led to lagged re-pricing of advances portfolio.
Stock ideas
Motilal's top picks among the PSU bank basket are SBI, BoB, and Canara Bank. For SBI, it has raised the target price from Rs 700 to Rs 800, BoB from Rs 240 to Rs 280, Indian Bank from Rs 460 to Rs 525, Union Bank from Rs 130 to Rs 150, and Canara Bank from Rs 440 to Rs 550.
While the brokerage has buy ratings on the above 5 stocks, it has a neutral rating on PNB but the price target has been increased from Rs 75 to Rs 90.
In the last 5 months, the Nifty PSU Bank index is up over 40% with Central Bank, IOB, PNB, and Union Bank rallying between 7-90%.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
