The banking sector is one of the most profitable industries in which one can invest. If you look closely then you’ll find that the best banking stocks are giving double digit returns on banking investments. Banks have a strong influence on the Indian economy and their stocks serve as a great way to make an impact on your portfolio. This is one of the most reliable industries as the banks are required to maintain a certain minimum capital.
The Indian banking sector has been growing at a massive rate of 6% to 14.2% over the past years and in fact it has been growing at the fastest pace in the whole world. Not all the investments are good but some are very promising stocks. We have picked the top 5 banking stocks in India for you.
How to Choose the top Banking Stocks to buy in India?
We have used the following factors in deciding which banking shares are the best to buy now in India.
One of the easiest ways to identify the best bank stocks to buy is by looking into its market capital. This gives you an insight into the trustability of the bank. A higher market capital shows that its stock is safer to invest in and it also tells that the company has been established for a longer time. Hence higher the market capital better will be your investment.
Return on Asset (ROA)
Obviously a wise investor will want a stock that gives him/her a good profit with a less time frame. This parameter tells you that when the ROA is higher it means that the bank is more efficient in generating profit. This is another important factor while choosing the best private or PSU banking stock.
Return on Equity (ROE)
This parameter shows the financial performance of a company which tells the relationship level between the company’s profit and investors’ return. The top Indian banking stocks have an ROE between 15-20% but to differentiate between banks, higher percentage is better.
Net Non Performing Assets ( Net NPA)
This shows the loan provision for the unpaid debts of the company. This parameter highly affects the profitability and liquidity of the company negatively. Hence to look for the best stocks to buy in the banking sector, you must look for banking stocks with lower Net NPA .
Net Interest Margin (NIM)
This is an indicator of financial stability and growth rate of the bank. A higher NIM is a green flag for investors while choosing which banking stock is the best to buy right now. But keep in mind that a low NIM and a high NPA is a bad combination.
Best Bank Stocks to buy in India in 2022: My best Picks!
Mentioned below are the top 5 banking sectors for long and short term investment with their specific advantages:
State Bank of India: Best PSU Banking Stock (with largest market cap)
SBI is the largest bank in India. A company which has a CAGR 15% is worth investing in but the compounded CAGR of the SBI funds over the past 5 years have increased by 25-40%. SBI is expecting a rebound strongly in the terms of earnings this year hence making this to the list of best bank stocks to buy in 2022.
Other PSU banks have failed to keep their stand and they give up market share to private sectors unlike them SBI has still stood firm. SBI has gained its shares in retail assets, over allowance and also deposits through the last decade. According to CLSA SBI gets an advantage in asset quality. SBI has 40% of its domestic corporate loans given out to PSU and two thirds of the market share from the government and PSU employees.
Value Assessment of SBI
- Market Capital(Market Cap) : SBI has the highest market capital i.e. 49.1 Trillion rupees.
- Return on Assets (ROA) : 0.67 %
- Return on Equity (ROE) : 9.33%
- Net Non Performing Assets (Net NPA) : 1.02%
- Net Interest Margin (NIM) : 2.42%
ICICI Bank: Most Profitable Private Banking Stock to buy in India
Ascending to the second position in the list of the best banking stocks for long and short term is ICICI. The retail segment has continued to increase at an immense rate with a 33% Year on Year earnings growth.
NIFTY bank has been outshined by the great performance of the ICICI bank shares by a massive margin of 4%. ICICI Bank shares have tripled the return to investors over the past five years.
Value Assessment of ICICI Bank
- Market Capital(Market Cap) : 6.15 Trillion rupees.
- Return on Assets (ROA) : 1.84%
- Return on Equity (ROE) : 11.67%
- Net Non Performing Assets (Net NPA) : 0.76%
- Net Interest Margin (NIM) : 3.36%
HDFC Bank: Best Private Banking Stock to buy in 2022
There are 42 asset management companies in India out of which 39 hold stocks in different schemes from the HDFC Bank. This proves its trustability and popularity.
The bank has seen a 666.92% growth in its Net Interest Income throughout the past 10 years. It has also gained 5177% to 2111 levels on the Bombay Stock Exchange with its stock which was listed at ₹40 i.e. three times its issue price. Although being on the third number, HDFC is one of the best private bank stock to buy today as comparing its value assessment.
Value Assessment of HDFC
- Market Capital(Market Cap) : 8.05 Trillion rupees.
- Return on Assets (ROA) : 2.00%
- Return on Equity (ROE) : 16.56%%
- Net Non Performing Assets (Net NPA) : 0.35%
- Net Interest Margin (NIM) : 4.00%
Kotak Mahindra Bank: Profitable Bank Stock
“A private sector lender that has lagged behind Nifty Bank over the past two years could grow up to 26% over the next year and even reach a $100 billion market cap in the next four years, foreign brokerage firm”, Goldman Sachs says in the report.
Even thought Kotak has a relatively smaller market cap it still steals a spot at our top most banking stock to buy now lists. The credit losses are lower than other banks according to recent research. A lot of improvement has been seen in the return ratio as the operating leverage improved the productivity by putting access capital towards advances.
Value Assessment of Kotak Mahindra
- Market Capital(Market Cap) : 3.70 Trillion rupees
- Return on Assets (ROA) : 2.36%
- Return on Equity (ROE) : 12.60%
- Net Non Performing Assets (Net NPA) : 0.64%
- Net Interest Margin (NIM) : 3.91%
Axis bank is one of the largest private banking sector leaders in India. It has had a growth of 54% in standalone profit. One must not over look Axis Bank as it has been said to have good quality stocks which is why we have added it to the best private banking stock list to buy in India 2022.
Value Assessment of Axis Bank
- Market Capital(Market Cap) : 2.36 Trillion rupees
- Return on Assets (ROA) : 1.10%
- Return on Equity (ROE) : 7.08%
- Net Non Performing Assets (Net NPA) : 0.73%
- Net Interest Margin (NIM) : 2.81%
Things to know Before Buying Any Banking Stocks in India
What is the risk level for banking stocks?
One must keep themselves prepared as investing in the banking sector comes due to its high volatility and risk. So they may rise quickly but also fall quickly.
What is the best time to invest in banking stocks?
One must also look for a perfect time to invest into baking stocks by looking into the economic and financial status of the Indian sector. According to studies one can keep investments at the time when the stock is trading below 2 times trailing price to its book value for good results.
What are 3 other important things to keep in mind while before selecting the best banking stocks?
- You must understand your investment goal and choose respectively.
- You shouldn’t borrow to invest in stocks as it might turn out to be a mistake to take a loan for investing.
- Never skip out on reading all the conditions and terms of the contract.