Grab stocks now before hordes rush in & push prices up. SBI, ICICI Bank are good buys: Madhu Kela

It is well known that sentiment in Dalal Street changes very rapidly. Despondency turns into optimism in the blink of an eyelid.

When Madhu Kela had last advised us to buy stocks in June 2022, Dalal Street was deserted with only a few die-hard stragglers hanging around (see When sentiment improves it will be difficult to get quality stocks at such valuations).

Today, just a month later, sentiment has changed. The place is brimming with people looking for bargains. There is hope and optimism in the air.

"Better grab your seat before it gets too crowded," Kela said in his latest interview, sending the unmistakable hint that if the sentiment continues to improve, hordes of bargain-hunters will rush to Dalal Street, sending prices of stocks soaring.

"The correction happened because of macro factors. When the macro comes under control, obviously stock prices will not stay low. Now is the chance to build what you want to buy over the next three, four months," he advised.

As regards the preferred sector and stocks, Kela advised us to focus intensely on the banking sector for the simple reason that it has been battered badly, which is not justified, and so it will be the first to rebound.

"Private banks have delivered 23 percent negative returns in the last three years while PSU banks are almost flat. In the last eight years, there has been unprecedented amount of clean-up which has happened from the banking sector," he stated.

He also pointed out that while PSU banks have made provisions of Rs 12.9 lakh crore, private banks have made provisions of Rs 3.9 lakh crore in the last eight years.

As regards specific stocks, Kela recommended that we consider large-cap and well-capitalized banks like SBI, Canara Bank, Bank of Baroda and ICICI Bank.

He also emphasized that the large PSU banks are quoting at very cheap valuations of 0.5 to 1 time book value, which offers huge margin of safety.

It is worth noting that other experts have also recommended ICICI Bank as a top pick for a target price of Rs 1065 which is nearly a 50% upside. "We reiterate ICICI Bank as our top pick in the banking space given the visibility of 2% ROA by FY24E on the back of 21% CAGR in net profit over FY22-24E. Given the current increasing interest rate environment, the bank seems one of the best placed from ROA accretion perspective given its higher share of EBLR linkage, enabling faster transmission of rate increases on the asset side," Nirmal Bang has advised in its latest research report.

SBI has been recommended as a top pick by ICICI Securities for a target price of Rs 673 (45% gain). "SBI has set new standard in banking excellence: SBI exited FY22 with 13.9% RoE and 0.67% RoA aided by growth build-up, GNPAs at a decadal low, slippages at <1%, credit cost at 55bps and steady margin profile. Improved visibility on asset quality with ‘new normal’ credit cost of 1%, credit growth of 13%/15% for FY23E/FY24E, asset resolution and stable NIMs will drive RoE to >16% by FY23E/FY24E and valuations to 1.5x Sep’23E book. Maintain BUY with an unchanged target price of Rs673," the research report states.

HDFC Bank is also a fail-safe stock to bet on. According to experts, HDFC Bank’s runway is huge and it can potentially add a new HDFC Bank every 5 years. It is recommended for a Buy for 47% gain.