Stocks to buy: HDFC Bank, ICICI, Axis, AU Bank are BNP Paribas’s top 4 picks Among banks: SBI Life in Insurance

Stocks to Buy – BNP Paribas in its India strategy report says India looks strong on most parameters.

Strong domestic inflows and FDI inflows into Indian equities have boosted domestic equities in 2023. BNP Paribas sees no reason to change this. The macro environment looks favorable with inflation declining. Strong flows, earnings growth and overall outlook remain favorable.

BNP Paribas’s Nifty 50 target on December 24 is 23,500

For the US, economists at BNP Paribas expect 6 interest rate cuts in 2024 and a soft landing. India’s inclusion in global bond indices may support bond yields

But as all good things come at a price, the Indian market valuations look expensive

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The topic of investing and stock selection

BNP Paribas continues to favor financial services and ICT, while adding logistics to its outperformance area. They expect consumer staples, pharmaceuticals and automobiles to underperform given their rich valuations.

Banks – Credit growth is likely to remain healthy, driven primarily by the retail and SME sector, while the possibility of an eventual rebound in corporate loan growth provides an option to further accelerate growth, analysts at BNP Paribas said. Deposit growth remains reasonably strong at 12.9% y/y, addressing concerns about supply-side bottlenecks. Margin moderation has almost finished with cyclical peaks, with operating costs already setting a high base in FY24.

BNP Paribas expects FY25 earnings growth to closely follow loan growth, with a few exceptions. Valuations remain attractive with most banks trading at or below their long-term (10-year) average for the next 12 months by book value despite the promise of corporate leverage and the best balance sheet and profitability metrics in decades.

HDFC Bank, ICICI Bank and Axis Bank are among the top 3 large cap ideas in order of preference. AU BANK is their only favorite place.

insurance: Given the low base that BNP Paribas expects in FY24 and FY25, insurers should achieve high revenue growth coupled with stable profit margins. According to BNP, supporting the recent rise in pure protection sales (in the long term) will be a crucial factor in determining the extent to which VNB (Value of New Business) growth can be on the upside in year 24.

Also, ULIP sales are likely to rise, especially for larger fixed income policies, given their relatively tax-efficient yield offerings, even for fixed income plans, says BNP Paribas. The attractiveness of the valuation varies materially depending on the company, and SBI Life is the top choice in this area.

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information technology– Information technology remains another sectoral choice for BNP Paribas. As inflation eases and the RBI signals interest rate cuts, they expect discretionary IT spending to resume in 2024, which would accelerate revenue growth for Indian IT services companies. Moreover, the recent positive sentiment in comments from the Big Four companies provides additional comfort.

Telecommunications- in the space aHaving seen tariff hikes of around 20% in 2019 and 2021, BNP Paribas expects another tariff hike, likely after the general election, which would help the telecom industry grow.

BNP Paribas analysts also expect capex to moderate in FY25, as both major operators have made huge investments in the past few quarters. Moreover, delays in fundraising and inability to invest in 5G by Vodafone Idea should bode well for larger operators, analysts at BNP Paribas said. They still like the telecom space and believe Airtel and Jio are well positioned.

Disclaimer: The opinions and recommendations above are those of individual analysts or brokerage firms, and not those of Mint. We advise investors to consult certified experts before making any investment decisions

Alice