'Reaping the rewards': Why short-term investors leaning towards ICICI Bank over HDFC Bank? Key reasons explained
ICICI Bank
in the private banking space, thanks to its solid June quarter results. With strong profit growth and steady margins, ICICI is currently edging out rival
HDFC Bank
in investor preference.
HDFC Bank is currently dealing with various post-merger issues, notably an elevated credit-deposit (CD) ratio, which has affected investor confidence. The high CD ratio indicates that deposit growth is not keeping pace with credit expansion.
Despite both institutions maintaining premier banking networks across India, analysts note ICICI's current advantageous position.
"ICICI Bank is reaping the rewards of a well-executed transformation, showing clarity and consistency, while HDFC Bank navigates a transitional phase post-merger," Shrikant Chouhan, head, equity research, Kotak Securities told ET.
Following its June quarter results and weekend announcements regarding dividend and bonus issue, HDFC Bank shares increased by over 2% on Monday.
ICICI Bank shares rose nearly 3% after reporting healthy profit growth, supported by stable net interest margins and robust asset quality. HDFC Bank's performance has raised some concerns.
Post-merger, with its CD ratio remaining in the 90s, the bank faces difficulties in efficient liquidity deployment, affecting immediate loan growth and NIMs.
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ICICI Bank's superior near-term earnings visibility makes it more attractive to short-term investors.
"ICICI Bank seems to be a preferred pick with its robust asset quality, strong capital position and sustained profitability momentum," Prashanth Tapse, senior VP (research), Mehta Equities told ET.
Regarding HDFC Bank, Tapse notes that the stock's underperformance is likely to continue due to valuation adjustments and subdued post-merger earnings.
Although ICICI Bank is currently preferred, analysts maintain close observation of HDFC Bank. The institution has projected to surpass industry growth in FY27 earnings and match industry performance in FY26.
For short to medium-term investors seeking stability and earnings visibility, ICICI Bank remains the preferred choice, according to market experts. However, for long-term bets, HDFC Bank may gain favour, once there's more clarity on its post-merger growth trajectory and how it stacks up against ICICI Bank.
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