Gold standard, macro play and a nimble elephant! Anand Rathi’s banking trio offers upside potential up to 21%

In a landscape shaped by regulatory easing, tax-led consumption boost, and government capex, domestic brokerage firm Anand Rathi has curated a focused banking portfolio to ride the wave, which may offer up to 21% returns to the investors.

The brokerage firm has favored a trio it believes is best poised for the upcycle. ICICI Bank retains the title of the ‘gold standard’, Axis Bank is seen as a direct ‘macro play’, and SBI earns the tag of the ‘nimble elephant’ for its agility despite the scale.

“Strong liquidity infusion in the last three months, the CRR cut and a reduction in RWA for lending to NBFCs signal an easing regulatory stance. Additionally, the government’s tax reduction move would spur consumption (Rs900bn). This, coupled with the government’s capex can potentially drive 100bps higher credit growth to 13% inFY26evs.11.2% now,” Anand Rathi said in its report.

The domestic brokerage firm believes that improving liquidity will translate to better credit growth from H2FY26. With early signs of bottoming out in PL and CC, unsecured lending is likely to pick up for large banks. Secured lending remains stable while the RBI impetus will lend further support to growth in MSME and Housing loans.

Here’s a peak into Anand Rathi’s insights on top picks:

ICICI Bank (the gold standard): Buy| Target price: Rs 1,564| Upside: 17%

ICICI Bank is emerging as the new gold standard in banking, supported by multiple growth drivers across the retail and SME segments. The bank continues to focus on delivering consistent pre-provision operating profit (PPOP) growth while maintaining a strong emphasis on investments in technology and enhancing customer experience. Its high return on risk-weighted assets (RWA) is expected to support multiple expansions. Anand Rathi values ICICI Bank at 2.5 times FY27 estimated price-to-book value (PBV), with its subsidiaries contributing an additional Rs 220 per share to the overall valuation.

Axis Bank (Play on macro): Buy| Target price: Rs 1,310| Upside: 19%

Axis Bank is seen as a strong proxy to macroeconomic improvement, with its strengthening retail franchise positioning it well for growth. The bank’s focus on rural expansion is expected to be the next key growth frontier. Anand Rathi sees a favourable risk-reward profile for Axis Bank and values the stock at 1.6 times FY27 estimated price-to-book value (PBV), with its subsidiaries valued at Rs 57 per share.

State Bank of India (Nimble elephant): Buy| Target price: Rs 930| Upside: 20.4%

State Bank of India (SBI) is viewed as a strong institutional player that continues to gain market share across key segments. The bank maintains healthy asset quality, reinforcing its stability and growth prospects. Anand Rathi values the stock at 1.2 times FY27 estimated price-to-book value (PBV), with its subsidiaries contributing Rs 197 per share to the overall valuation.

Anand Rathi’s outlook on the sector

With this, the analysts at Anand Rathi believe that large banks are in a better position, owing to their strong deposit franchisee, low concentration risk, and diversified customer base.

“The scope for banks’ profitable growth is likely to be greater with digital readiness, openness to tie-ups and strong tech architecture,” they believe, stating that the challenger banks like IndusInd Bank, Bandhan Bank, RBL, and Yes Bank are undergoing different challenges and at this point, do not pose any serious challenge to the large private sector banks.

However, among key risks, the brokerage firm noted that macro-economic shocks could derail consumption and impact asset quality and the interest-rate shocks arising from higher-than-expected inflation.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)