Axis: ICICI; Axis just bounced back among analysts’ top banking picks | Techno Glob


Lenders that experienced asset quality issues during the previous loan cycle saw their strong loan growth; It is a top investor choice due to high net interest income (NIMs) and declining bad loans. A favorite among investors throughout the previous cycle; Now, while a section of investors is concerned about the prospect of founder Uday Kotak’s successor in the corner room, it faces competition from top private sector peers over asset quality.

ICICI Bank consolidated its position as an investor favorite with a 37% year-on-year jump in net profit at the end of September, led by broad-based loan growth. Analysts say the bank is well-placed to take full advantage of rising interest rates.

“With a rate book of 70%, the bank is well-positioned in a rising interest rate environment. … The bank sees recovery in sector-wise economic trends and stable asset quality trends while the bank has an industry-best, provision coverage ratio of 81%. Additional Covid-19 provision buffer provides further comfort. Bank expects to deliver FY24 equity return of 17.2%.”

said in a note.

Kotak also reported a 27% rise in net profit on the back of credit growth in its consumer banking segment as the Mumbai-based bank ramped up lending after the pandemic ended. Asset quality has also improved, falling to 2.08% from 3.19% last year.

However, Nomura Securities analysts Nilanjan Karfa and Punit Bahlani said unlike in 2014-15, strong asset quality is no longer considered a USP for banks.

“For Kotak to sustain its value, the driver needs to be growth and equity growth. … At some point, NIMs are likely to return to strong asset growth as they return to normal. A peak is likely and NIM is nearing its peak,” the broker said. A change in management led by Kotak Executive VC and MD) will be a significant push. ”

Kotak’s tenure ends in December 2023. He has led the bank he founded for over 18 years. This is more than the 15-year tenure provided by the Reserve.

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For Axis Bank; Asset quality is no longer a concern and loan growth is now skewed towards retail and rated companies. A 66% rise in consolidated net profit drew investors’ attention to the bank. However, researchers called for some flexibility before labeling it the top choice among banks. Axis reported a 35-basis-points improvement over June 2022 and NIM.

“Seeing such sharp NIM growth in NIMs is unusually high, so we need to see how sustainable it is… In a single quarter, if they can deliver a consistent return on assets of 1.8%, it can be argued. The current 1.7x core P/BV on an FY24E basis could reset to at least 2.0x in the near term,” Macquarie Capital said. Securities analyst Suresh Ganapathy said.

Santanu Chakrabarti, Analyst

Securities India says Axis is a ‘smart beta’ option, whose attractiveness is inversely proportional to the depth and length of the interest rate hike cycle, but with an acceptable ‘bear bag’ of returns.



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