ICICI Bank investors shouldn’t be satisfied after strong Q2 earnings

Still, investors in the stock should not be satisfied. The fight to grab more deposits is intensifying and ICICI Bank, despite its strong financial position, is not completely immune from the impacts.

Analysts at Kotak Institutional Equities said, “While the quarter had strong takeaways from better NIMs and lower credit cost, we would be wary of stability of the former (NIM) and be comfortable with the latter (cost of credit).” According to the domestic brokerage house, the ability to maintain NIMs will be difficult for all banks including ICICI Bank.

In Q2, ICICI Bank’s domestic NIM rose 31 basis points sequentially to a multi-quarter high of 4.45%. One basis point is 0.01%. The private sector lender saw more NIM expansion than HDFC Bank Ltd. However, it should be noted that the bank’s management told analysts that incrementally, deposit revaluation is likely to happen at a faster pace, which could put pressure on NIMs.

This means that if the bank’s deposit growth is not substantial, it could hamper its pursuit for market share. Further, the new two-bank franchise, which also caters to the SME segment, may falter in the economic crisis scenario, said Krishnan ASV, Senior Vice President, Institutional Research, HDFC Securities. “As of now, the market sentiment is that nothing can go wrong here and hence investors should be cautious,” he said.

In addition, the trend in ICICI Bank’s operating expenses is an important monitorable. During the quarter, its standalone operating costs grew 24% year over year due to higher employee expenses and costs related to retail business and technology. It was a sluggish spot in its second-good second quarter earnings, as the bank missed analysts’ expectations on this metric. The bank’s management expects operating expenses to remain high. Management stated that the bank added 200 branches in H1FY23 and the speed of addition was higher than before.

Meanwhile, ICICI Bank shares hit a 52-week high 943.25 on NSE on Tuesday. Shares of ICICI Bank have gained 25 per cent over the sector index Nifty Bank so far this calendar year. Analysts say strong earnings performance gives ICICI Bank an edge over peers, but after the recent rally, a meaningful rally in the stock is expected to be gradual.