The relentless rally in shares of ICICI Bank has eclipsed the valuation difference with its immediate peer HDFC Bank. According to Bloomberg data, ICICI Bank now commands a price to book of 2.82 times, based on its one-year forward book value. That compares with HDFC Bank’s 2.67 times.

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On the other hand, Kotak Mahindra Bank — the most expensive bank stock in the country — is trading at about four times of its 12-month forward book value.

In fact, despite having a lower weight compared to HDFC Bank, the stock of ICICI Bank has contributed as much as 27 percent to Bank Nifty’s rally since June 16, 2022. With another 21 percent contribution from the largest lender — HDFC Bank, the gauge for bank stocks – Bank Nifty — rose 35.2 percent from its June lows.

As of Monday, HDFC Bank boasts the highest weight of 31.1 percent on Bank Nifty. While ICICI Bank has 29.1 percent weight, the weight of Kotak Mahindra Bank stood at 12.5 percent.

Source: Bloomberg

Over the last few quarters, ICICI Bank – the second largest private lender, has managed to deliver better than HDFC Bank in many parameters. During the last ten quarters, the rise in net interest income (NII) for ICICI Bank has been higher than that of HDFC Bank. Similarly, the net profit of ICICI Bank grew at a faster pace than HDFC Bank over the last 14 quarters.

Many brokerages and fund houses are now preferring ICICI Bank over HDFC Bank. For instance, as of May 15, SBI Funds Management has 5.8 percent exposure to ICICI Bank against 4.2 percent for HDFC Bank.

Similarly, foreign brokerage, CLSA, which expects a moderation in credit growth to 11 percent to 12 percent by FY24-25 has ICICI Bank as one of its top picks. Other preferred stocks for CLSA include Axis Bank and SBI.

Shares of ICICI Bank have gained as much as 45 percent from their March 2022 lows against 21 percent gains clocked by HDFC Bank during the same period.

First Published:Jun 5, 2023 10:43 PM IST