Q2 earnings done for HDFC Bank, ICICI, other private lenders. What's next?

Major private banks, including HDFC Bank, ICICI Bank and Kotak Mahindra Bank, have reported their Q2 FY27 earnings, delivering a mixed bag of results. Against this backdrop, analysts have identified banks that offer attractive valuations and those investors may want to avoid.

The Q2 earnings season for the private lenders accelerated on October 17 when HDFC Bank, ICICI Bank, Axis Bank and Yes Bank released their results for the July-September quarter of the ongoing financial year. India’s largest private lender HDFC Bank reported a 5% YoY rise in net profit to Rs 19,510 crore, delivering a largely in-line performance, although the market reaction was muted. The shares of the lender have dropped 6% since the earnings announcement.

ICICI Bank meanwhile reported a 20% year-on-year (YoY) increase in second-quarter profit to Rs 14,800 crore. Jefferies and Nuvama have ‘Buy’ ratings on the stock, while Bernstein maintained its ‘Outperform’ rating. The stock has however fallen marginally over the past one week.


Also read | ICICI Bank share price target after Q2 results: What are Jefferies, other analysts saying?

Axis and Yes Bank saw 38% and 65% profit growth, respectively, while the shares of the two private lenders have fallen up to 4% over the past five days. Kotak Mahindra Bank meanwhile released its results on October 24, reporting 29% YoY growth in net profit. International brokerages like Jefferies raised target prices and earnings estimates for the stock, leading to a positive momentum of more than 2% in the lender’s share price on Monday.

Notably, the earnings print came after the RBI delivered its first interest rate hike in nearly four years, as anticipated and shifted its policy stance from ‘Neutral’ to ‘Calibrated tightening’.

Also read | RBI rate hike done. Now what’s ahead for bank stocks? Jefferies, other brokerages weigh in

How are market experts analysing the Q2 results?

Most private banks have reported in-line results, underpinned by strong loan growth, driven by demand across segments, robust deposit accretion due to better-than-expected FCNR deposits inflows, moderation in credit cost and slippages amid a benign credit environment, and sequential margin impact for banks with higher FCNR accretion, said Sunny Agrawal, Head of Fundamental Research at SBI Securities.

Shrikant Chouhan, Head of Equity Research of Kotak Neo, noted that while Q2 earnings for private banks were broadly in line with expectations, margins remained a tad under pressure from excess liquidity, rate-cut pass-through and competition. “Asset quality remains largely controlled, though we will monitor the impact of drought in parts of India.”

What lies ahead for private banks?

Going ahead, Agrawal from SBI Securities feels that net interest margins (NIM) would remain under pressure as full FCNR impact flows through, partially offset by repo rate hike, before reviving from Q4 onwards. Chouhan also said that the focus will shift to margin recovery, deposit mobilisation and sustainable profitability. The recent rate hike could provide a tailwind, while FCNR-related margin pressures may take time to normalise.

Asset quality is expected to remain stable, with all eyes on commentary regarding asset quality across drought-affected regions. Private bank stocks have corrected materially from their highs amid macroeconomic uncertainty and FII outflows. With valuations becoming attractive and loan growth remaining healthy, the risk-reward is improving, according to the analyst.

“We continue to remain constructive on ICICI Bank among large-cap, and Karur Vysya Bank among mid-tier,” Agrawal from SBI Securities said. Chouhan from Kotak Neo meanwhile prefers ICICI Bank, Axis Bank and HDFC Bank, with ICICI Bank as the firm’s top pick, backed by consistent execution, strong growth and disciplined underwriting. Axis offers recovery potential as credit costs moderate, while HDFC Bank offers longer-term upside, contingent on improving deposit mobilisation and profitability. “We favour selective accumulation of quality private banks,” he said.

Also read | Banks seek relief from sustainable lending norms for FCNR(B) loans

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.