Indian private bank shares drop as Q1 margins disappoint
Indian private bank stocks fell sharply after first-quarter results revealed widening margin pressures, overshadowing a recent recovery driven by returning foreign investors.
Shares of India's leading private lenders dropped as first-quarter results showed net interest margins are compressing across the sector. ICICI Bank was the sole exception to the widespread weakness.
The market reaction reflects a repricing of earnings quality. For most lenders, lower provisions masked the fact that net interest income growth lagged behind their expanding balance sheets.
HDFC Bank specifically missed forecasts. Solanki attributed this to a declining CASA ratio and a tough comparison against a one-time gain from the HDB Financial Services IPO in the same quarter a year ago.
The selloff interrupts what had been a tentative recovery for the sector. After pulling out ₹114,826 crore from January through May, foreign investors bought ₹14,634 crore in the second half of June following a ₹11,263 crore withdrawal earlier that month. This renewed foreign interest helped lift the Private Bank Index 2.1% in July through Friday, slightly outpacing the Nifty's 2% gain.
Despite the current weakness, some brokerages see value in the sector. Macquarie maintained its 'Outperform' rating on ICICI Bank, HDFC Bank and Axis Bank, noting that ICICI's 16% year-on-year profit growth beat expectations while HDFC and Axis offer reasonable valuations.
Sunny Agrawal, head of research at SBI Securities, noted that HDFC, Axis and Kotak Mahindra Bank all reported net interest income growth that lagged their balance-sheet expansion.
Analysts continue to favour ICICI Bank as the sector's standout. Agrawal cited its double-digit growth across advances, deposits, net interest income and profit after tax, ranking it as his top choice ahead of Axis Bank. Solanki also prefers ICICI, though he views HDFC Bank as a viable contrarian bet for investors willing to hold for more than a year.
