By Nitin Bhasin of Ambit says “banks” is currently the best sector to invest in India.
The head of institutional equities expects Indian bank stocks to outperform next year as they offer solid earnings growth at reasonable valuations.
He’s bullish on the sector as the Bank Nifty/Nifty ratio currently sits at a Z-score of -2.
Indian banks have a history of outperforming over the next 12 months whenever this financial metric, which compares their performance to the broader market, hits that score.
Indian bank stocks offer attractive valuations
Nitin Bhasin recommends owning Indian bank stocks as, unlike many other sectors, they are not priced to perfection at writing.
“Banks account for more than a third of profits in India and not even a quarter of your market cap,” he said in a recent interview with CNBC.
The banking sector is seemingly exciting to own also because India is currently one of the fastest-growing economies in the world, with a GDP growth rate of around 7.0%.
That’s significant since rapid economic growth typically translates to higher demand for banking services and financial products.
Note that the Bank Nifty Index is already up some 20% versus its year-to-date low in early February.
Indian banking sector is committed to growth
Another significant reason to own Indian bank stocks include their utter commitment to digital transformation.
Indian banks are heavily investing in digital technologies, such as mobile banking and other online services.
They are leveraging artificial intelligence as well to improve customer experience and operational efficiency, which could help unlock further upside in their share prices.
Additionally, government initiatives are promoting financial inclusion, expanding banking services to previously unbanked or underbanked populations.
This may expand the customer base and drive future growth for the Indian banking sector.
Plus, shares of Indian banks are known for sustainable dividends that make them all the more exciting to own for 2025.
Should you invest in HDFC bank stock today?
Within the Indian banking sector, a US listed stock that’s particularly worth owning is HDFC Bank Ltd, according to Wall Street analysts.
The Street-high target on HDB shares currently sits at $90 that indicates potential for a more than 35% upside from current levels in 2025.
And a 1.04% dividend yield makes up for another good reason to have it in your investment portfolio.
In late October, India’s largest private lender reported a 5.3% annualised increase in quarterly net profit.
At the time, HDFC reported a 10% year-on-year increase in its net interest income.
On the downside, however, the bank’s asset quality saw a slight decline as evidenced in a bump in gross non-performing assets (NPAs) to 1.36% of the gross loans.
HDFC stock is currently trading at about the same price at which it started 2024.
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