Want to invest in banking stocks? Invest in ICICI Bank, according to Jeffries

27 Jun 2022 , 10:26 AM

One of the top banks in the world with the strongest risk-reward ratio and a 50% upside potential over the next 12 months, according to international brokerage firm Jefferies, is ICICI Bank.

“ICICI Bank offers among the best risk/reward ratios among global banks in terms of RoA (return on assets) and PB (price to book) in FY23/CY22, according to the comparison. As its one-year forward core banking PB of 2x is fully supported by its RoA of 1.8-1.9%, which also has a possible upside risk, it trades at 1.1x on PB/RoA, according to the brokerage.

In reality, it said in a report, “ICICI Bank offers among the greatest RoA among global banks that are near 1x on PB/RoA.”

In the base case, Jefferies has set a 12-month target price of Rs 1,070 for the company and stated that if a few things go in ICICI Bank’s favour, it may possibly reach Rs1,170. The stock will get a significant boost from a possible upside of 64% from the current levels. It has set the aim at Rs660 in the event of a bear market.

Due to its lesser exposure to riskier industries and controllable amount of SME or unsecured retail loans, the institution is in a stronger position. According to the research, it also has one of the strongest deposit franchises and should profit from deposit polarisation.

The price-to-earnings ratio and price-to-book ratio for ICICI Bank are currently 21 and nearly three times, respectively. The stock was down roughly 7% in 2022, but it has increased 2.5 times in the last five years.

In recent years, it has surpassed several of its competitors in terms of stock performance and financial performance. It has also edged over its major rival HDFC Bank, changing public perception in its favor.

According to analysts, the bank is currently being supported by a number of catalysts, including the relaxation of Covid restrictions, a return to normal lending activity, a higher-than-anticipated level of asset quality in the unsecured retail portfolio, lower deposit rates, higher CASA as a result of deposit polarisation, and early resolution of stressed assets.

The ICICI Bank is well-positioned to capitalize on the improvement in bank credit growth, which has increased from 8% to 12% year on year. Given its competence in project financing, it might also benefit from an increase in the capex cycle. Domestic analysts share the same opinions.