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Synopsis: ICICI Bank is poised as a strong contender in India's financial services sector, backed by robust underwriting improvements and strategic asset-liability management. While the bank's shares have shown flat performance recently, Kotak Institutional Equities remains optimistic about its long-term potential, maintaining a 'Buy' recommendation with a target price of Rs1,400. The valuation is supported by an expected RoE of 15%, though the investment outlook remains cautiously optimistic given the bank's peak valuation levels relative to its peers.
ICICI Bank, a leading player in India's financial services sector, has been recognized as a top pick by Kotak Institutional Equities, reflecting its potential for long-term growth. The brokerage firm values ICICI Bank at 2.8 times its book value and 18 times its expected earnings per share (EPS) for June 2026, projecting a return on equity (RoE) of 15%. Despite these optimistic evaluations, ICICI Bank's shares have seen relatively flat performance over the past month, raising concerns among investors about the bank's future, particularly in the context of a potential contraction in net interest margins (NIM).
Kotak’s recent discussions with ICICI Bank stakeholders suggest that while fears of underperformance are prevalent, they may be unfounded for now. The bank's underwriting practices have shown significant improvement, distancing itself from the weaker standards associated with its past. Kotak highlighted that this enhancement in underwriting is a crucial factor in maintaining the bank’s current premium valuation relative to its peers.
ICICI Bank's NIM has benefited from a favorable loan mix and a robust liability franchise. Although the asset mix might shift towards lower yields, Kotak's analysis indicates that improved pricing strategies could offset this moderation. Additionally, the re-pricing on the liability side appears to be complete, suggesting potential for NIM improvement unless there is an aggressive rate-cut cycle.
Despite the bank enjoying best-in-class valuation multiples, Kotak maintains a conservative earnings estimate, with a target price of Rs1,400 per share. The bank’s subsidiaries are valued at Rs200 per share, further solidifying its position as a steady compounder in the financial sector.
Disclaimer: This article is for informational purposes only and should not be considered as investment advice. The stock market is subject to risks, and it is recommended to consult with a financial advisor before making investment decisions.
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