ICICI Vs. HDFC: Why So Many Investors Are Banking On ICICI Stocks 

There are many positive takeaways from ICICI Bank’s Q4 earnings. Q4’s net profit exceeded forecasts, thanks to improved asset quality, decreased provisions and solid loan growth. In addition, the private sector lender’s domestic net interest margin (NIM) and return on assets reached new highs.

Meanwhile, in HDFC Bank’s fourth quarter, the bank experienced fewer provisions and steady asset quality. Its core NIM fell to 4%, a multi-quarter low, as stronger growth in the low-margin corporate loan market dragged it down.

The NIM of ICICI Bank has gradually improved over the last few quarters, whereas that of HDFC Bank has been range-bound for a while now. This has aided ICICI Bank in closing the gap in its valuation. As margin levers play out, this is expected to fall further.

The mutual funds have been consolidating their positions ahead of the HDFC–HDFC Bank merger in order to align with the maximum single stock holding allowed by SEBI. Due to this, HDFC Bank‘s shares dropped nearly 19% from its high when the merger was announced on April 4th. There have also been a few concerns about the speed at which the transition is progressing.

Following a recent market adjustment, HDFC Bank‘s values are now in line with ICICI Bank‘s. ICICI Bank has a very easy and clean operation ahead of it, whereas HDFC Bank must navigate the merger process.

Given the swap ratio between HDFC Ltd. and HDFC Bank, an additional 6% arbitrage gain is attainable if one decides to purchase HDFC Ltd. Of course, considering the merger itself will take 12-18 months to complete, this will take some time.

In my opinion, HDFC Bank has grown big enough that they are now stuck trying to figure out its next step. ICICI bank, on the other hand, has realised that it has room for growth and hence its fast pace can be justified. The fundamentals of ICICI bank are growing at such a rate that they are going to need some breathing room later on and by then, HDFC Bank might have their way figured out. 

As an investor, I always go with momentum. The bank that looks good on the chart will stay in my portfolio until the trend is bent!

Manvendra Pratap Singh is the Founder and CEO of Trinkerr. He is an IIT Kanpur-IIM Lucknow alumnus and an investor with 15+ years of experience.