ICICI Bank scales close to 52 week high after strong Q2 earnings.

By | October 30, 2018
ICICI Bank becoming No: 2 Leader in Bank Nifty with the stock hitting 52 week high
Icici bank 1 year chart

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The ICICI bank opened very strong and closed at 349 and just almost 5 percent away from its 52 week high of 365 on 29.10.2018. The Bank reported better than estimated earnings. This was a key contributor to bank nifty stellar performance. The Icici Bank performance has made this a potential investment-ideas in banking space.

Bank Nifty showed stellar performance :

The banking giant gave a significant push to bank nifty today and was a key contributor to bank nifty moving by 538 points. The theme in bank nifty seems to show that the corporate lenders like ICICI Bank and Axis Bank are taking the new leadership status. Gradually money is moving away from retail focussed banks like Kotak, IndusInd, and others.

The retail focussed banks are far away from their 52 week high and few of them are making fresh 52 week low like the IndusInd bank even hitting below 1400. Only HDFC bank in spite of being retail focussed is trading close to new 52 week high . It is the only retail focussed bank which is lending stability and support to bank nifty as it has the highest weighting in bank nifty with the market cap of above 5 lakh crores.

52 week high stocks vs 52 week lows -:

The 52 week high and 52 week low profile is a very good measure to see and identify the new leaders and new winners emerging in any sectoral index. The 52 week high or stocks close to 52 week high are the best-investment-ideas that one should buy during such corrections. 52 week lows are the worst investment-ideas and should be avoided in deep corrections.

Stocks hit new highs for a reason and markets are a forward-looking animal which starts discounting coming years earnings. Therefore these stocks start hitting 52 week high on better and improved growth outlook. 52 week high stocks trade above all the important moving averages and such stocks don’t face any resistances and every seller is in profit who had bought the stock in last one year.

Institutional Participation helps the stocks to hit 52 week high -:

Stocks move when institutions esp Mutual funds, ETFs, FIIS start allocating big money in stocks and sectors and they start upgrading the stocks and sectors they like. Most of the brokerages are upbeat on the ICICI Bank because of the very strong retail low-cost deposit base of CASA deposits. Additionally, resolutions in NCLT will see a lot of money coming back into these banks. These big ticket buyers when they start allocating big money to some stocks, then those stocks start to move to their 52 week high. The sheer force of liquidity chasing those few stocks changes the market dynamics completely. The CANSLIM theory also advocates the same principle of investing in a 52 week high.

NBFCs hitting fresh 52-week low each day -:

Also, the recent NBFC crisis shall see the high-quality deposit banks taking market share away in coming years from the NBFC counterparts as the NBFCs are hitting fresh 52 week Low due to the higher cost of borrowing and asset-liability mismatches.NBFCs like Indiabulls Housing, DHFL, Cholamandalam, Can Fin Homes, Pnb Housing, Repco and many more have hit not only 52 week low but multi years low and these stocks will not see their old highs for many years to come. Very few high-quality NBFC like Bajaj Finance will survive this downturn because they have well-diversified borrowing mix of retail, wholesales, and CPs and are not entirely dependent upon commercial papers.

All the above factors shall change the horses in Bank Nifty leadership as old 52 week high will become laggards and new 52 week high shall become the new stalwarts.

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The earnings profile of ICICI Bank is highlighted below with its salient features :

  • Asset Quality improved :

The asset quality showed improvement with GNPA moving from 8.81 to 8.54 percent. The net NPA also improved to 3.65 percent from 4.19 percent in Q2 from Q1. The financial services have the very high importance of these two ratios of GNPA and net NPA as banking is a leveraged business.

  • Net Interest Margin Profile :

Net interest Margin which is another important metric which measures the performance of the banks. It is the interest earned on loans advanced and the interest paid on deposits stood at 3.33 percent in Q2.

The consolidated net profit after tax stood at 1205 cr against estimates of 815 cr. The stock is currently trading at 1.2 times fy 20 book which gives enough headroom for the P/B multiple to expand further.

The management transition after Chanda Kochar which was not giving management premium to ICICI Bank has also evaded now and the bank seems to be back on track with new management taking guard and the stock performance is hinting the same.

All the above factors make this stock to be part of everyone’s portfolio. This stock will keep on making new highs and once it crosses the levels of 365. Then this stock shall be at almost 5 years high and it will be a multiyear breakout. The stock has formed bottom on daily, weekly and monthly charts. The stock has bottomed out fundamentally and technically on all time frames. This offers a very ideal opportunity and should be bought as a great investment-ideas in 2018.

 

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