Shares of ICICI Bank and HDFC Bank have been among the top picks of investors in the banking sector, considering their large scale of operations and strong financial position. The stocks of banks, which are market leaders in the sector, form a major chunk of the portfolio of long-term investors. In terms of returns, ICICI Bank has surpassed its bigger competitor during the last five years. While shares of ICICI Bank rose 209 per cent, HDFC Bank stock gained 63.57 per cent in five years.
However, HDFC Bank has lost 2.63 per cent in a year against a 28.53 per cent rise in the stock of ICICI Bank during the same period. In 2022, ICICI Bank and HDFC Bank shares have climbed 23 per cent and 1.87 per cent, respectively.
In terms of financials, both banks delivered a strong set of earnings in the last quarter. India’s second biggest private sector lender ICICI Bank logged a 50 per cent year-on-year (YoY) rise in profit after tax (PAT) at Rs 6,905 crore in the June quarter as against Rs 4,616 crore in the corresponding quarter last year.
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Net interest income (NII) rose 21 per cent YoY to Rs 13,210 crore and its net interest margin (NIM) for the April-June period stood at 4.92 per cent. In comparison, the bank’s NII stood at Rs 10,936 crore in the same quarter last year.
Total income during the Q1 FY23 also rose to Rs 28,336.74 crore from Rs 24,379.27 crore in Q1 FY22. Interest income climbed to Rs 23,671.54 crore during the same quarter in FY23 from Rs 20,383.41 crore in the year-ago period.
On the other hand, India’s largest lender HDFC Bank’s net profit increased 19 per cent to Rs 9,195.99 crore in the June quarter from Rs 7,729.64 crore in the year-ago period, but was down from Rs 10,055.18 crore in the preceding March quarter.
Total income rose to Rs 41,560 crore on a standalone basis, as compared to Rs 36,771 crore in the year-ago period. However, total expenditure rose to Rs 26,192 crore from Rs 21,634 crore.
Overall provisions for the reporting quarter reduced to Rs 3,187.73 crore as against Rs 4,830.84 crore in the year-ago period.
The shares of the two lenders were trading on a flat note today.
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HDFC Bank stock rose 0.10 per cent to Rs 1,512 against the previous close of Rs 1,511 on BSE.
Shares of HDFC Bank were trading higher than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. Total 4.55 lakh shares of the firm changed hands amounting to a turnover of Rs 68.39 crore. Market cap of the firm rose to Rs 8.41 lakh crore on BSE.
On the other hand, shares of ICICI Bank were down 0.05 per cent at Rs 908 on BSE. The stock hit an all-time high of Rs 913 today. Total 1.01 lakh shares of the firm changed hands amounting to a turnover of Rs 9.19 crore. Market cap of the firm rose to Rs 6.32 lakh crore on BSE.
Here’s a look at what analysts said about the outlook of the two stocks.
Punit Patni, Equity Research Analyst, Swastika Investmart
“The banking industry is on the cusp of a strong growth cycle and large-sized banks will be the biggest beneficiaries due to their low cost of funds and scale advantages. In recent times, HDFC Bank’s stock has underperformed its peers due to concerns like the merger overhang and reduction in agility in terms of growth due to its behemoth size. However, the concerns and underperformance are overdone; the bank having an enviable record of robust performance during multiple credit cycles, an experienced management team, and stringent underwriting standards is poised to perform well in the long term. Further, the HDFC merger will be value accretive for the bank. We are positive about both ICICI Bank and HDFC Bank from a medium to long-term perspective, but ICICI Bank might outperform HDFC Bank in the near term.”
Manoj Dalmia, founder and director, Proficient Equities
“ICICI Bank has given a breakout by forming all-time high. A closing above Rs 909 can push the stocks to higher levels with a target price of Rs 979. HDFC Bank stock has been sideways for a while. We can see levels of Rs 1639 in the near term. Both banks are fundamentally strong, but ICICI can be a good bet as new highs have been formed which can trigger some upmoves.”
Ravi Singh, vice President and head of research, Share India
“ICICI Bank and HDFC Bank both are the leading stocks of the sector with a promising outlook for a long-term perspective. However, in comparison, ICICI bank has a slight upper hand on certain gauge parameters. Although, HDFC bank offered a better return on equity of around 17 per cent as compared to 8.11 percent of ICICI bank over a period of 5 years, the 5-year CAGR return of HDFC bank is 12.4% whereas for ICICI bank it is 25.6%. ICICI bank also delivered less volatile NIM and better CASA ratio over the same period. However, the difference is not substantial and investors may divide their investment in the ratio of 60:40 in both the said banks. ICICI Bank has a target of Rs 1,150 and HDFC Bank of Rs 1,600 over the next 3 – 6 months.”
Rajesh Sinha, senior research analyst at Bonanza Portfolio
“ICICI Bank’s share has risen more than 28.29% over the past one year where the Nifty50 has risen only 4.15%. HDFC Bank has disappointed investors with a fall of almost 2.69% in the past one year. If we take the price journey for last five years or from the pre pandemic level, story doesn’t change much. Over the time, ICICI Bank has reclaimed its place in the banking space after a gap of many years. ICICI Bank reported 19% YoY, increase in its core operating profit its strongest performance in Q1FY23, higher than HDFC Bank’s 15%. ICICI Bank’s operating profits growth has been volatile while HDFC Bank’s has been more consistent. Whereas operating profit growth has been consistent over the past few quarters. For Q1FY23, net interest income growth of ICICI Bank was around 20.8% versus HDFC Bank’s 14.5%. Loan book for the banks has shown a very interesting change. Post-pandemic, HDFC Bank has invested big into wholesale lending while ICICI Bank’s book has turned into retail heavily. As a result, the share of retail loans now stands at 53% in ICICI Bank’s book, mostly driven by secured lending whereas HDFC Bank’s loan portfolio is now corporate loan-heavy with a growing share of small business loans. Both the banks are growing their loan book almost at an equal rate across different interest cycles. However, if the comparison is made on the basis of credit quality, HDFC Bank is far ahead of ICICI Bank. Also, HDFC Bank has reported consistently lower and stable NPAs across the interest cycle whereas ICICI Bank’s credit quality has fluctuated a lot and is relatively unstable. On the net interest margin front, too, HDFC Bank scores better but ICICI Bank isn’t far behind,” said Sinha
“The gap between the two banks has been bridged largely because of HDFC Bank’s valuation erosion over the past two years owing to concerns over technology, uncertainty surrounding the merger with Housing Development Finance Corporation Ltd. and a management change. On the other hand since the management of ICICI Bank was taken over by Sanjay Bakshi, there has been a drastic improvement in the bank’s performance. It’s inching closer to HDFC Bank in terms of financial performance and is one of the fastest growing companies in India 2022. We believed that in long term, ICICI Bank may give a decent return whereas investor may consider HDFC Bank for stable returns in future, “added Sinha
