SBI, ICICI Bank, L&T and more: HDFC Securities lists 7 large-cap stock picks to bet on amid volatility

A day after experiencing significant losses of 3 percent, Indian stock market benchmarks—the Sensex and the Nifty 50—made a strong recovery on Tuesday, August 6, rising over 1 percent each. This rebound followed a recovery in global markets after the previous session's decline triggered by concerns over a potential U.S. recession, spurred by weaker-than-expected July payroll data.

While experts remain optimistic about the Indian market's long-term prospects, they anticipate some near-term consolidation due to high valuations. To navigate this volatility, HDFC Securities has highlighted 7 large-cap stocks for long-term investment. Let's take a closer look.

Stock picks

Bajaj Finance: The brokerage has a ‘buy’ call on the NBFC stock with a target price of ₹8,810, implying a 33.5% upside. HDFC Securities highlighted that Bajaj Finance is one of the largest and most diversified NBFCs in India, with a broad lending portfolio across retail, SME, and commercial sectors, and a strong presence in both urban and rural areas. The company has achieved impressive AUM growth of 35% year-on-year and maintained stable NIMs at 11.3%, though elevated credit costs of 1.8% annualised have impacted its performance. HDFC Sec anticipates that Bajaj Finance will continue its long-range strategy through FY28, with projected AUM CAGR of 22-27% and earnings CAGR of 20-25% from FY24 to FY28.

ICICI Bank: The brokerage has a ‘buy’ call on the private sector lender with a target price of ₹1,270, which implies an upside of over 8%. According to HDFC, ICICI Bank is the second-largest and one of the fastest-growing private sector banks in India, with deposits and advances of ₹14.1 lakh crore and ₹11.8 lakh crore, respectively, at the end of FY24. Although net interest margins (NIMs) are expected to moderate from the 4.4% reported in Q4FY24, the bank is projected to maintain industry-leading return on assets (RoA) and return on equity (RoE) of 2% and 18%, respectively. HDFC also noted that ICICI Bank has a strong balance sheet, with a Common Equity Tier 1 (CET-1) ratio of 15.6% and gross non-performing assets (GNPA) and net non-performing assets (NNPA) at 2.2% and 0.4%, respectively, positioning it well to gain market share in a competitive environment.

Kotak Mahindra Bank: The brokerage has an ‘add’ call on the private sector lender with a target price of ₹2,025, indicating an upside of over 14%. Kotak Mahindra Bank (KMB) has lagged behind the Bank Nifty index by 20% in recent months, primarily due to three significant factors: a CEO transition, a regulatory ban on digital client acquisition, and senior management changes. According to HDFC, while all three factors have contributed to the bank’s underperformance, the RBI-imposed embargo on digital client acquisition is the most impactful. The brokerage emphasises that KMB must focus on rebuilding regulatory confidence to address this critical issue and restore its performance.

Larsen & Toubro: The brokerage has an ‘add’ call on the infra stock with a target price of ₹4,033, implying an over 14% upside. HDFC Securities noted that L&T is the best play on the capex story in India and Middle East. During FY24, the company achieved an order inflow of ₹3 lakh crore, marking a 31% year-on-year increase, and bringing its order book to a record ₹4.7 lakh crore, approximately 2.2 times its FY23 revenue. Given this robust order book, L&T has set a revenue growth guidance of 15% and a 10% increase in order inflow for FY25, with expectations for improving margins. HDFC Securities remains optimistic about L&T due to its record-high order book, the anticipated stabilisation of infrastructure margins, better performance from subsidiaries, and increased public capital expenditure towards a green economy.

Maruti Suzuki: The brokerage has an ‘add’ call on the auto major with a target price of ₹13,612, indicating an 11.5% upside. HDFC Securities noted that Maruti Suzuki delivered impressive Q4FY24 PAT figures, driven by improved margins. The company retained its market leader position in the UV (utility vehicle) segment through a series of aggressive product launches. Exports rose by 50% in FY24 and are expected to be a significant growth driver for Maruti in FY25-26. Additionally, the auto sector outperformed the Nifty index in Q4, largely due to a strong rally in select 2W (two wheelers) and PV (passenger vehicles) stocks.

State Bank of India: The brokerage has an ‘add’ call on the largest public sector lender with a target price of ₹1,040, which implies an upside of over 28%. HDFC Securities highlighted that after a period of sluggish performance, SBI reported impressive results for Q4FY24, driven by strong fee income, robust loan growth, and stable NIMs. The bank’s asset quality continued to improve, with gross non-performing assets (GNPA) and net non-performing assets (NNPA) decreasing to 2.2% and 0.6%, respectively, and the provisioning coverage ratio (PCR) at 75%. Management has forecasted a loan growth of approximately 13-15% and stable margins, which are expected to support a return on assets (RoA) of 1% and potentially lead to a rerating of the bank.

Sun Pharma: The brokerage has an ‘add’ call on the pharma sector stock with a target price of ₹1,750, which implies an upside of just 2%. HDFC noted that the U.S. business is expected to see a slight quarter-over-quarter improvement, supported by steady performance in the specialty sector, gRevlimid sales, and stable Taro sales. However, this may be offset by supply issues at key plants in Halol and Mohali. In India, the company anticipates a 10% year-over-year growth, with a steady gross margin (+300 basis points year-over-year) but higher R&D costs potentially impacting the EBITDA margin. HDFC views Sun Pharma as a top pick in the pharma sector, citing growth drivers such as: (1) expansion in specialty pharmaceuticals, (2) strong performance in U.S. generics with new launches, (3) growth in India through market expansion and new product launches, and (4) a robust cash position that supports potential mergers and acquisitions.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.