CitiGroup overweight on banks; prefers Axis, BoB, ICICI Bank

MUMBAI: CitiGroup has recommended investors to buy banking stocks as it expects the interest rates to fall and yield curve to steepen in the next few months. Axis Bank, ICICI Bank and Bank of Baroda are some of the stocks the brokerage is bullish on.

“Effectively, the mix of falling rates, steeping yield curve and expectations of a loan growth revival are good for bank stock performance – we believe that time is now. It is, however, too early for a bull run – that only comes when loan growth actually starts rising (as do interest rates); and that’s not on the horizon,” the brokerage said in a report.

It has maintained its overweight stance on banks in its Indian model portfolio. It prefers Axis Bank, ICICI Bank and Bank of Baroda based on a mix of their relatively high economy sensitivity and moderate valuations.

“We are raising our target price for bank stocks under coverage – the target price revision is almost exclusively on rolling forward our price and target multiples to March 2014, vs Sep 2013. The only material exception is SBI where we raise its consolidated PBV multiple to 1.3x vs 1.1x earlier, reflecting the large cap and preferred play bias amongst investors, within the government bank space,” the note added.

Axis Bank:

We revise our target price to Rs 1,433 from Rs 1,320 based on a roll forward to FY14 from Sep’13 earlier, and retain our benchmark multiple at 2x FY14E P/BV.

The stock was at Rs 1,112.50, down 1.39 per cent on the BSE. It touched a high of Rs 1,123.90 and a low of Rs 1,110.15 in trade today.

ICICI Bank:

We revise our target price to Rs1,200 from Rs1,100 based on a roll forward to FY14 from Sep’13 earlier. We retain our benchmark multiple for the banking business at 1.8x (ICICI Bank's domestic banking business on 2.0x 1yr Fwd PBV and international business at 1.25x).

The stock was at Rs 1,053.25, down 1.02 per cent on the BSE. It touched a high of Rs 1,057.90 and a low of Rs 1,050 in trade today.

Bank of Baroda:

We revise our target price to Rs 900 from Rs 825 based on a roll forward to FY14 from Sep’13 earlier. It is benchmarked off a multiple of 1.0x FY14E P/BV which remains unchanged.

The stock was at Rs 772.60, down 0.04 per cent on the BSE. It touched a high of Rs 779.60 and a low of Rs 763.05 in trade today.

SBI:

We revise our target price to Rs 2,625 from Rs 2,200 based on a roll forward to FY14 from Sep’13 earlier. Additionally, it is benchmarked off a higher multiple of consolidated PBV to 1.3x vs 1.1x earlier, reflecting the large cap and preferred play bias amongst investors, within the government bank space.

The stock was at Rs 2,240.85, down 1.73 per cent, on the BSE. It touched a high of Rs 2,264.70 and a low of Rs 2,235 in trade today.