The shares of HDFC Bank, Axis Bank, Kotak Mahindra Bank and Yes Bank have tumbled this week, eroding more than Rs 1.5 lakh crore in combined market capitalisation after their Q1 earnings announcements last weekend. However, analysts believe the sharp correction has made valuations increasingly attractive.
The heavyweight private lenders released their Q1 results on Saturday, following which HDFC Bank and Axis Bank shares dropped up to 9% this week. Yes Bank and Kotak Mahindra Bank shares have overall fallen up to 3%. The sharp fall in the shares of these 4 private lenders has pushed the Nifty Private Bank index down over 4% in just four sessions.
June quarter earnings alone, however, cannot be blamed. The broader Nifty 50 index itself has fallen nearly 2% over the past four sessions as escalating Iran-US tensions and rising oil prices renewed inflationary worries and spooked investors.
A silver lining to sharp crash in bank stocks
While the bank stocks have wiped off more than Rs 1.5 lakh crore from investors’ wealth amid the sharp selloff, analysts are now pointing out attractive valuations in these battered stocks. "Banking stocks appear attractively valued, particularly in the context of high credit growth and very low NPA," said VK Vijayakumar, Chief Investment Strategist at Geojit Investments, while noting that India’s vulnerability to high oil prices is once again becoming a macro concern.
Among the top private lenders, Equirus Securities named Axis Bank as its top pick after the Q1 earnings print, followed by HDFC Bank, ICICI Bank and Kotak Mahindra Bank. While ICICI Bank continues to deliver best-in-class execution, combining resilient margins, sector-leading profitability and strong loan growth, the brokerage believes that much of this is already reflected in its premium valuation. ICICI Bank shares currently have a P/E ratio of 17x.
Also read | ICICI Bank wins analysts’ vote after Q1 show; HDFC Bank, Axis, Kotak & Yes Bank face scrutiny
Axis Bank meanwhile appears to be approaching an earnings inflection point, with management indicating that NIMs have bottomed out, retail disbursements are improving, deposit-cost pressures are easing, and substantial provisioning buffers should mitigate the ECL transition, Equirus said.
HDFC Bank remains a high-quality franchise, although its investment case is increasingly medium term, according to the brokerage, which expects near-term NIM recovery to be gradual amid balance-sheet normalisation and FCNR(B)-related margin pressure.
Macquarie maintained an 'Outperform' rating on ICICI Bank, HDFC Bank and Axis Bank after the first-quarter results. The brokerage said ICICI Bank's profit growth of 16% year-on-year exceeded expectations and that valuations of HDFC Bank and Axis Bank remain reasonable. It, however, remains ‘Neutral’ on the shares of Kotak Mahindra Bank.
Q1 earnings of private lenders
HDFC Bank, Axis Bank, Kotak Mahindra Bank and Yes Bank shares are extending losses for the week so far after their June-quarter earnings failed to impress the market. India’s largest private lender, HDFC Bank, on Saturday reported a 5% year-on-year (YoY) rise in net profit to Rs 19,060 crore for Q1 FY27, while NII rose 7% YoY to Rs 33,534 crore.
Axis Bank’s net profit and NII rose 23% and 8% respectively, while those of Kotak Mahindra Bank climbed 26% and 9% during the quarter under review. Yes Bank, meanwhile, reported a 34% YoY surge in net profit, while NII grew 18%.
ICICI Bank reported a 16% YoY increase in standalone net profit to Rs 14,805 crore for the June quarter, while NII rose nearly 13%.
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