FIIs bullish on ICICI Bank; stake hits 6-year high

During quarter ended March, the stock gains 13.3% compared with the Bankex's 12% rise

The recent rally in banking stocks has been aided by hope that a stable government at the Centre will help boost the economy. This year, the BSE banking index, or the Bankex, has risen 12 per cent, compared with a rise of seven per cent in the benchmark S&P BSE Sensex and CNX Nifty.

In the banking pack, foreign institutional investors (FIIs) have been aggressively buying into ICICI Bank; their holdings in the leading private sector lender touched a six-year high of 39.85 per cent in the quarter ended March. During this period, the stock gained 13.3 per cent, compared with the Bankex’s 12 per cent rise.

FII holding in ICICI Bank stood at 46.4 per cent in the December 2004 quarter and 40.3 per cent in the March 2008 quarter. According to latest data available with exchanges, FIIs bought additional stake of 1.46 percentage points in ICICI Bank in quarter ended March this year; in the quarter ended December 2013, they held 38.39 per cent stake, while in the September 2013 quarter, their stake stood at 37.54 per cent.

In the March 2014 quarter, FIIs bought 17 million shares, worth Rs 1,838 crore, in ICICI Bank; in the December 2013 quarter, they had bought 9.8 million shares, worth Rs 1,033 crore. An analyst at Angel Broking says: “From a cyclical perspective, an improvement in the macro environment is likely to benefit all banks, including ICICI Bank. We have a ‘buy’ recommendation on ICICI Bank, with a target price of Rs 1,606.”

For the quarter ended March 2014, Dhananjay Sinha, strategist and head of research at Emkay Global, expects 16.5 per cent year-on-year growth in ICICI Bank’s net interest income, led by 19 per cent growth in the loan portfolio and a stable margin of 2.9 per cent. “With 13 per cent growth in other income, operating profit is likely to grow 16.9 per cent year-on-year,” he says.

Meanwhile, Life Insurance Corporation of India reduced its holdings in ICICI Bank to 8.74 per cent in the March quarter from 9.7 per cent in the December 2013 quarter. In the September 2013 quarter, the insurer held 10.46 per cent stake in the bank.

Aalok Shah, analyst with Centrum Broking, believes considering the healthy capital position and profitable subsidiaries, the upside for the bank seems capped.

“The guidance over higher levels of slippages/credit cost has raised apprehension over further re-rating. While we derive comfort in the bank’s ability to provide for this, valuations are near historic averages, limiting further upsides. We have rolled our price target to FY16 ABV (adjusted book value), valued the bank on an SOTP (sum-of-the-parts)-based valuation methodology and arrived at a target price of Rs 1,350,” he says.

Currently, ICICI Bank is being traded at Rs 1,252 on BSE, having rallied 38 per cent from Rs 884 on September 30, 2013, when FIIs began increasing their stake. The benchmark S&P BSE Sensex has gained 15.9 per cent during the same period.