Chief Analyst of LRO Investment Advisor Limited
United Kingdom, 18th Dec 2023 – The festive season is here, and so is the Santa rally for the equity markets. Every day seems to bring a new reason to celebrate, as the indices soar to new heights and the sectors show signs of recovery. One of the sectors that has been shining bright is banking, especially the largecap and midcap banks. In this essay, I will explain why I am bullish on three bank stocks: ICICI, Kotak and AU Bank.
ICICI and Kotak: The largecap leaders
Among the largecap banks, ICICI and Kotak are looking very good, as they have strong fundamentals, robust growth prospects and attractive valuations. Both banks have been able to maintain their asset quality, despite the challenges posed by the pandemic. They have also been able to leverage their digital capabilities, expand their customer base and diversify their revenue streams. ICICI and Kotak have also been rewarding their shareholders with consistent dividends and buybacks. I believe that these banks have a lot of potential to grow further and deliver superior returns in the long term.
AU Bank: The midcap star
Moving on to the midcap segment, AU Bank is making a fresh move, as it has emerged as one of the fastest growing small finance banks in the country. AU Bank has a unique business model, as it caters to the underserved segments of the society, such as micro, small and medium enterprises (MSMEs), rural and semi-urban customers, and low-income households. AU Bank has been able to reduce its cost of funds, as it has access to low-cost deposits and diversified sources of funding. Moreover, with the moderation of bond yields, I expect that AU Bank’s MSME book will expand very fast, as it will be able to offer competitive lending rates and products. AU Bank also has a strong track record of profitability, efficiency and governance. Therefore, I think that AU Bank is a great value proposition at these prices.
To sum up, I would stick with the banking sector, as I see a lot of opportunities and growth potential in this space. I would go with ICICI, Kotak and AU Bank, as they are the best bets among the largecap and midcap banks. These banks have been able to overcome the challenges posed by the pandemic, and are well-positioned to benefit from the economic recovery and the festive cheer. I am confident that these banks will continue to outperform the market and reward their investors in the future. Welcome to Santa Claus rally, and enjoy the party while it lasts!
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