![Emkay likes HDFC Bank, IndusInd Bank and RBL Bank. Value is also visible in the PSU bank names such as BOB, Canara Bank, PNB and Union Bank, it said. Emkay likes HDFC Bank, IndusInd Bank and RBL Bank. Value is also visible in the PSU bank names such as BOB, Canara Bank, PNB and Union Bank, it said.](https://akm-img-a-in.tosshub.com/businesstoday/images/story/202501/6798aaa0c3bff-emkay-likes-hdfc-bank--indusind-bank-and-rbl-bank-value-is-also-visible-in-the-psu-bank-names-such-285955112-16x9.jpg?size=948:533)
Bank stocks surged on Tuesday, taking benchmark indices higher, thanks to RBI’s big liquidity move, which is seen as the central bank's a statement of intent and, probably, the first of many steps to ease liquidity position.
On Tuesday, Axis Bank Ltd led the banking names climbing 3.9 per cent to Rs 984.90. HDCF Bank Ltd rose 2.69 per cent to Rs 1,673.50. ICICI Bank Ltd added 1.5 per cent to Rs 1,246.40. Bank of Baroda, IndusInd Bank, State Bank of India, Kotak Mahindra Bank Ltd and Canara Bank also gained up to 1.4 per cent.
The RBI has announced a three-pronged liquidity injection into the market, totaling Rs 60,000 crore and covering 20 per cent of the total liquidity shortage of Rs 2.9 lakh crore. "We see this as a statement of intent and, probably, the first of many steps: the RBI has other tools in its kitty in case natural liquidity does not ease," Emkay Global said.
Emkay Global said the move is more important than an actual rate cut as market rates respond immediately, and a rate cut without a liquidity injection is ineffective.
"The market reaction has been muted so far, with yields rallying by 5-10 bps at the short-end, but by 2-3 bps at the long-end, given that the system is still net-deficit. However, we see a strong rally at the short-end as the RBI takes more steps to address the tight liquidity," Emkay Global said.
Besides, Emkay Global said the earnings have held up through January 2025. The Q3 earnings season, it said, has been uninspiring so far, but this was baked into estimates, and forward earnings downgrades have been stemmed.
"BFSI is the immediate beneficiary of the turn in liquidity. Deposit-hungry banks, where growth is limited by funding, are the best trades, and we choose HDFC Bank, IndusInd Bank, and RBL Bank. Value is also visible in the PSU bank basket, with valuations of second-line banks at 0.7 times – BOB, Canara Bank, PNB, and Union Bank, in that order," Emkay Global said.
The domestic brokerage said that its top picks for the year remain unchanged, but Zomato stands out as a stock where the reaction to the results has been overdone and it sees a great entry opportunity at 7 times EV/revenue and cash/M-cap at 9.2 per cent.
Market outlook
Emkay said a turn in the liquidity cycle is a strong stimulant for domestic equities, and BFSI is the best way to play this in the short term.
"This is coupled with other positives – earnings forecasts have held up through Jan-25 and valuations are now more reasonable. This may not be the absolute low for the markets, but we think it is a good time to start nibbling into stocks where valuations are now reasonable," it said.
Among largecaps, it prefers Lupin, Zomato, and Tata Motors. Among midcaps, it likes IndusInd Bank, Escorts, and One 97 Communication Ltd (Paytm). In the smallcaps space, the brokerage likes StoveKraft, Metropolis Healthcare, and Quess Corp.
"The Nifty EPS has held up at Rs1,043 and Rs1,202 for FY25 and FY26, respectively, and we believe that we are at the end of the downgrade cycle. Moreover, valuations are now at more reasonable levels, with the Nifty at 19x 1YF which is 4.8 per cent below the 10Y mean. Midcap and smallcap PEs are still elevated but have corrected 17.8% and 17.2% from the peak and are now at 37.3x and 29.8x, resp (trailing 12M).
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