Stocks to buy: Motilal Oswal's top selections in the financial services sector include ICICI Bank, IndusInd Bank, and BoB

 Stocks to buy: Motilal Oswal's top selections in the financial services sector include ICICI Bank, IndusInd Bank, and BoB

Despite net interest margin (NIM) compression in the second quarter of FY24, earnings are anticipated to expand at a respectable rate in the banking and financial services sector.

Brokerage company Motilal Oswal Financial Services anticipates that systemic loan growth would remain robust in FY24, at 14% YoY, thanks to ongoing expansion in the retail and SME groups.

Motilal Oswal's top picks within the Banking, Financial Services, and Insurance (BFSI) sector are ICICI Bank, IndusInd Bank, Bank of Baroda, and SBI Life Insurance Company.

Buy | Target Price: 1,150 | ICICI Bank

ICICI Bank has recorded consistent growth and profitability over the past few years, and as of Q1FY24, its provision coverage ratio (PCR) was the highest in the sector at over 83%. 

With the help of ongoing technology investments and collaborations with new ecosystem actors, the bank is emerging as a growth leader in the SME and Retail areas. The brokerage house Motilal Oswal anticipates a bank loan CAGR of 18% throughout the period of FY23–FY25.

As it continues to provide strong return ratios and sustained growth, driven by its focus on core operating performance, ICICI Bank has opportunity for re-rating. In FY25, we anticipate RoA/RoE to be 2.2%/18.0%, according to Motilal Oswal.

The firm has given ICICI Bank a 'Buy' rating and set a target price of $1,150 per share, which would represent a gain of more than 22% from Thursday's closing price.

Indian Bank | Buy | Target Price: 1,650

With earnings up 30% year over year and a robust net interest income (NII) rise of 18% YoY, IndusInd Bank has announced strong Q1FY24 performance. Lower provisions also helped. For the past few quarters, margins have been stable, with advancements' growth driving overall profitability.

With a market share of 2% of net systemic advances and a dominant position in the auto financing and MFI sectors accounting for 26% and 10% of its advances, respectively, as of 1QFY24, IndusInd Bank has maintained its market dominance. According to the brokerage, the management has forecast 18–23% loan growth under PC-6, and a moderated credit cost is anticipated to support an increase in ROA.

With a target price of 1,650 per share and a 'Buy' rating on the company, Motilal Oswal anticipates an increase of around 18%.

In FY25, it predicts RoA/RoE of 2.0%/17.4%. It also stated that the stock trades at a favorable value of 1.5x FY25E ABV.

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TP: 240 | Bank of Baroda | Buy

A significant improvement in asset quality has been observed by public sector lender Bank of Baroda, thanks in part to better underwriting and increased collection effectiveness. 

According to Motilal Oswal, the bank's retail book growth will be 1.5 times greater than the growth of all loans and will increase its percentage of the overall loan mix. 

"This should underpin loan growth and keep it higher than peers, along with an improvement in the SME and Corporate books. We anticipate NII to remain flat QoQ due to a moderation in margins brought on by the rising cost of deposits and the majority of the variable rate book having already been re-priced. A robust CASA mix in the 40–42% area, however, will prevent further decrease, according to the brokerage.

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It projects 1.2% and 17.1% RoA and RoE for FY25. It also stated that the stock trades at a favorable valuation of 0.9x FY25E ABV.

The stock has a 'Buy' rating from the brokerage company and a TP of 240 per share.

TP: 1,570 SBI Life Insurance Company | Buy

SBI Life Insurance Company has experienced sluggish growth in premiums across sectors, with Individual WRP growing by 4% YoY and Group WRP growing by a similar amount in 1QFY24. Growth is fueled by both agency and banca channels. 

The brokerage anticipates a 20% APE CAGR over the years FY23–25, led by the sustained success of its protection and non-PAR products.

Consistency ratios are probably going to be stable across cohorts. A resurgence in business growth and the onset of operating leverage will also likely keep the cost ratios under control.

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"We estimate a 19% VNB CAGR over FY23-25 and operating RoEV of around 21.3% by FY25, while VNB margins should be stable at around 30%," the statement read.

The stock currently has a 'Buy' recommendation from Motilal Oswal and a target price of $1,570 per share, which would represent a gain of more than 23% from Thursday's closing price.