ICICI Bank, Indusind Bank, Bob Among Motilal Oswal’s Top Picks In Financial Services Sector

The banking and financial services industry is poised for significant growth, with expectations of resilient earnings despite net interest margin (NIM) compression in the second quarter of FY24. According to Motilal Oswal Financial Services, a brokerage firm, the systemic loan growth is projected to remain robust at 14% YoY in FY24, primarily driven by sustained momentum in the Retail and SME segments. The firm’s estimate for its banking coverage universe (excluding HDFC Bank) suggests an anticipated earnings growth of around 22% YoY in Q2FY24. Top picks in the Banking, Financial Services, and Insurance (BFSI) sector include ICICI Bank, IndusInd Bank, Bank of Baroda, and SBI Life Insurance Company.


ICICI Bank has demonstrated consistent growth and profitability in recent years while enhancing its provision coverage ratio (PCR) to around 83% as of Q1FY24, marking the highest in the industry. The bank is positioning itself as a growth leader in the SME and Retail segments, supported by ongoing investments in technology and collaborations with new ecosystem players. Motilal Oswal anticipates an 18% loan Compound Annual Growth Rate (CAGR) for the bank over FY23-25. Motilal Oswal expresses confidence in ICICI Bank, citing its potential for re-rating due to consistent delivery of solid return ratios and sustainable growth driven by a focus on core operating performance. The firm estimates a Return on Assets (RoA) and Return on Equity (RoE) of 2.2% and 18.0%, respectively, in FY25. The brokerage maintains a ‘Buy’ rating on ICICI Bank with a target price of ₹1,150 per share, implying an upside of over 22% from Thursday’s closing price.

IndusInd Bank has delivered a robust performance in Q1FY24, exhibiting a 30% YoY growth in earnings driven by a healthy 18% YoY expansion in net interest income (NII) and reduced provisions. The bank has sustained stable margins in recent quarters, and its overall profitability has benefited from the growth in advances. Maintaining a market share of approximately 2% of net systemic advances, IndusInd Bank holds a leadership position in the vehicle finance and MFI segments, constituting 26% and 10% of its advances, respectively, as of 1QFY24. The management’s guidance for loan growth of 18-23% under PC-6, along with an anticipated moderation in credit costs, is expected to contribute to ROA expansion.

Motilal Oswal expresses confidence in the stock, maintaining a ‘Buy’ rating with a target price of ₹1,650 per share, indicating an expected upside of nearly 18%. The brokerage estimates RoA/RoE of 2.0%/17.4% in FY25, highlighting the stock’s attractive valuation of 1.5x FY25E ABV.

Regarding Bank of Baroda, the public sector lender has demonstrated a substantial improvement in asset quality, driven by enhanced underwriting and increased collection efficiency. Motilal Oswal anticipates the bank’s retail book growth to outpace total loan growth, gaining a share in the overall loan mix. Despite an expected moderation in margins due to rising deposit costs and the majority of the floating rate book already being re-priced, the brokerage anticipates NII to remain relatively flat quarter-over-quarter. The presence of a healthy CASA mix in the range of 40-42% is expected to limit the decline. The brokerage reiterates a ‘Buy’ rating on the stock with a target price of ₹240 per share. The stock is perceived to trade at attractive valuations of 0.9x FY25E ABV.

SBI Life Insurance Company has experienced slow growth in premiums across various segments, with a 4% YoY increase in Individual WRP and flat YoY growth in Group WRP during 1QFY24. Both agency and bancassurance channels have contributed to this growth. The brokerage projects a 20% APE CAGR over FY23-25, primarily fueled by sustained momentum in Non-PAR and Protection products. Expectations include healthy persistency ratios across different cohorts, and the control of cost ratios is anticipated due to a resurgence in business growth and the activation of operating leverage. Motilal Oswal reiterates a ‘Buy’ rating on the stock with a target price of ₹1,570 per share, indicating a potential upside of over 23% from Thursday’s closing price. The brokerage forecasts a 19% VNB CAGR over FY23-25, estimating an operating Return on Embedded Value (RoEV) of around 21.3% by FY25. Additionally, VNB margins are projected to remain stable at approximately 30%.