Introduction: In the dynamic landscape of Indian banking, two giants, ICICI Bank and HDFC Bank, have drawn the attention of analysts. This article delves into the comparative analysis of these financial institutions, exploring the reasons behind ICICI Bank being the preferred pick for some brokerages.
Current Scenario: Both ICICI Bank and HDFC Bank find themselves in a similar position regarding margins. However, certain factors differentiate the two, making ICICI Bank stand out as a preferred choice.
Case for HDFC Bank: InCred Equities highlighted concerns for HDFC Bank, particularly in terms of deposit growth and a weak Liquidity Coverage Ratio (LCR) at 110 per cent. The struggle over deposit growth has led to a need for a probable deposit rate hike, with the expectation that ICICI Bank would follow suit to manage its market share. Additionally, HDFC Bank boasts superior access on the yield front, especially in unsecured retail and SME/MSME loans, thanks to a wider branch network and improved rural/semi-urban reach.
The operating leverage is expected to play a key role in HDFC Bank's growth, driven by an increase in the size of large-ticket mortgage loans. InCred Equities predicts a 26.1 per cent PAT CAGR over FY23F-26F for HDFC Bank, outpacing ICICI Bank’s expected 15.9 per cent.
Case for ICICI Bank: Contrastingly, ICICI Bank has its own set of strengths that position it favorably. Nuvama points out that ICICI Bank has consistently delivered balanced and granular growth over the past two years. With a strong balance sheet, better-than-expected net interest margin (NIM), and comfortable liquidity, it is anticipated that ICICI Bank's loan growth in FY25 will surpass that of HDFC Bank. Furthermore, ICICI Bank is considered a "must-own stock" in a sector constrained on deposits, with the lowest risk exposure on the Indian macro.
Elara Securities emphasizes ICICI Bank's ability to withstand sectoral strain with steady earnings. It is seen as a clean play on best-in-class Return on Assets (RoA), trading at a premium compared to HDFC Bank. Nomura India and Motilal Oswal Securities have also declared ICICI Bank as their preferred banking pick.
Target Prices: The target prices for both banks provide insights into the market's expectations. ICICI Bank, with an average target price of Rs 1,210, suggests a 16 per cent potential upside, according to Trendlyne. In comparison, HDFC Bank's average target price of Rs 1,966 implies a more substantial 35 per cent upside.
Conclusion: While both ICICI Bank and HDFC Bank garner positive views from analysts, the prevailing sentiment favors ICICI Bank due to its balanced growth, strong financials, and perceived lower risk in the face of sectoral challenges. Investors are urged to exercise caution and seek advice from financial experts before making any investment decisions.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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