Large private banks like HDFC Bank and IndusInd Bank are trading at premium valuations with strong RoE >20% while Kotak Mahindra Bank trades rich over 6x P/ABV. Accordingly, the basket of large PSU banks like SBI, PNB and BoB appear strong for upside while Axis Bank, among large private banks, offers an opportunity for further appreciation with reasonable valuations.
We maintain our bullish stance on select large PSU banks and expect consistency in private banks to continue with stable performance. We have raised target prices based on revised market multiples. Accordingly, Axis Bank, PNB are our top picks in banking sector in the current environment based on our sector valuation analysis (Mcap/branch). We prefer SBI as it is market leader with lower stress levels in asset quality.