ICICI BANK – Vivid Progress

ICICI Bank outshines the benchmark indices Nifty and Bank Nifty, but the returns from this stock are far superior in comparison with HDFC Bank and Kotak Bank.

Quarterly Earnings Results Walkthrough

ICICI Bank has been the banking stock with the best performance in the last few years and has beaten the broad benchmark (Nifty) and the sector index (Nifty Bank) by a wide margin.

The bank’s vigorous earnings performance in the second quarter (Q2FY23) justifies the stock’s huge outperformance. The consolidated net profit of the second-largest private bank grew by 27 percent to Rs 8361 crore, compared with the same quarter last year (Q2FY22), despite treasury loss and rise in operating expenses.

The profit growth was supported by a market-leading loan growth, record high margins, healthy fee income and significantly lower credit costs/provisions even as the bank gathered up alternative provisions during the quarter.

ICICI Bank now trades at par with HDFC Bank in terms of valuation, after having traded at a valuation discount to the largest private bank for most period in its listing history. ICICI Bank outmatched HDFC Bank in terms of loan growth, funding profile, asset quality and capital position. ICICI Bank has exceeded HDFC Bank on key financial parameters like margins and provisioning buffer.

The domestic loan book increased by 23 percent YoY, driven by a broad-based growth across business segments. Retail credit grew by 25 percent YoY, led by mortgages and unsecured book (personal loans and credit cards).  Corporate credit has shown good traction and increased by 23 percent YoY.

A deposit growth of 12 percent, YoY, lagged advances growth which was in line with the trend in the banking industry.

The bank created a contingency provision of Rs 1,500 crore in Q2, taking the total excess provisions to Rs 10,000 crore, amounting to 1.10 percent of the loan book. This can help meet future contingencies.

Technical Analysis

ICICI BANK Weekly Candlestick Chart on Sharekhan’s TradeTiger

ICICI Bank hit its lifetime high of Rs 943 on 25th October 2022 after the quarterly earnings results were declared. The latest candle being formed looks to be a gravestone doji as the stock faces the double top resistance into its distribution zone.

By observing the retracement levels from the crash of 2020, we can expect the stock to rise further to its 261.8% retracement level at Rs 1007. The strong growth posted though the quarterly earnings will aide the stock price to rise further.

However, MFI stands at 65 and the stock price has overextended far away from its 100-day exponential moving average. This implies that the stock is highly expensive and overbought.

Considering the clean and strong balance sheet and with ample capital, the odds clearly favour ICICI Bank in delivering strong earnings growth in the coming quarters as well.

With the improvement in equity market sentiments and macro environment, valuation multiples can re-rate further, driving the stock upside.  The sector tailwinds, in terms of improving credit growth and margin support from the rise in interest rates, should also aid the stock’s rerating.

ICICI Bank is the star of the banking sector, for now.

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