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Jefferies says its top banking pick offers 18% upside, sees asset quality improving

Jefferies says its top banking pick offers 18% upside, sees asset quality improving

Jefferies says its top banking pick offers 18% upside, sees asset quality improving
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By Mousumi Paul  Jun 25, 2020 6:38 AM IST (Updated)

Despite factoring all the negatives in the current scenario of banking system, Jefferies feel that ICICI Bank is an attractive buy. According to the brokerage, the private lender offers a favourable risk reward with receding asset quality risks. The report said that further receding of  moratorium levels will provide comfort to asset quality.

The onset of the coronavirus pandemic is expected to take a toll on banks as customers struggle to repay their loans in the wake of the lockdown-induced slowdown.

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However, despite the gloom, analysts at Jefferies have picked ICICI Bank as an attractive buy.
According to the brokerage, the private lender offers a favourable risk reward with receding asset quality risks (fall in moratorium loans & lower share of unsecured/ SME loans) and ability to grow loans with market share gains from bonds/NBFCs as it leverages deposit franchise.
The technical chart of the stock also looks promising showcasing ICICI Bank's shares plunging 50 percent this year but with recovery in over two months to 42 percent till date since March lows.
Loans under moratorium -- a closely watched metric now -- for ICICI Bank stays at a 30 percent in May 2020. The report said that a further reduction in moratorium levels will provide comfort to asset quality.
"ICICI Bank should be among the prime beneficiaries of gravitation of retail as well as commercial deposits to larger banks. This should reflect in stronger deposit growth for the bank over H1FY20 and will position it well to gain market share from bonds as well as NBFCs," the report said.
Jefferies also noted that monetisation of recent gains from the stake sale in listed subsidiaries (ICICI Lombard, ICICI Prudential Life) of about Rs 31 billion can be expanded to Rs 43 billion if the bank further cuts its shareholding to 51 percent.
"Considering attractive valuations, stronger deposit growth, lower risk of dilution and balanced asset quality, ICICI Bank is our top pick from financials which has the capacity of a 18 percent upside on the current target price of Rs 460," said the brokerage.
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