ICICI Bank Trades At A Premium To Axis Bank First Time In Five Years

ICICI Bank Ltd. is trading at a premium to its private peer Axis Bank Ltd. for the first time in five years on the back of improving asset quality and operating metrics.

ICICI Bank’s blended forward price-to-book surpassed the reading for Axis Bank a few days before the end the September quarter. That came as shares of ICICI Bank returned 39 percent gain so far this year compared with a 19 percent increase in Axis Bank.

The divergence between the two stocks in the last one month has been driven by expected $1 billion buying in ICICI Bank after its weight in the MSCI index is expected following the rebalancing of the gauge on Nov. 26.

ICICI Bank’s asset quality performance has improved in the past few quarters even as it deteriorated for Axis Bank and scored over its peer on other parameters.

Analysts are more bullish on ICICI Bank. 98 percent of the 57 analysts tracking the lender have a ‘Buy’ rating on ICICI Bank, according to Bloomberg data. That compares with 85 percent ‘Buy’ calls from among 54 analysts for Axis Bank.

Motilal Oswal expects fresh slippages for ICICI Bank to be better at 1.9 percent against 3.4 percent for Axis Bank in the ongoing fiscal year 2020. It forecast 1.6 percent return on assets and 17 percent return on equity for ICICI Bank by FY21 against 1.3 percent and 14 percent, respectively, for Axis Bank.

Adarsh Parasrampuria, analyst at Nomura, is bullish on both. Quality of earnings has improved materially for ICICI Bank and Axis Bank over last 4-5 years and that will drive more sustainable core pre-provisional operating profit, he wrote in a note. The brokerage expects further rerating for the two lenders.