The ouster of Chanda Kochhar was a big blow to one of India’s largest private banks. Poor corporate governance meant the stock price of ICICI Bank took a beating, as fresh allegations continued to emerge against the once-revered CEO. But since Kochhar's resignation in October 2018, the shadow of financial misconduct has given way to renewed investor interest. In fact, ICICI Bank has risen 73% since then, to scale a 52-week high of 518. It currently trades at 510 and analysts at Morgan Stanley Research say there’s room for more upside. In their report, they state, “We still see 50-100% upside in one to two years.” They remain overweight on the stock, since at 1.8x core P/B for FY21, it’s still available at “a deep discount to private peers”. Whereas, Axis Bank trades at 1.9x, IndusInd at 2.4x and Kotak Bank at 3.7x.
This exuberance in the stock has allowed many to cash in. Anirudh Kamani, CEO of ICICI Home Finance sold shares worth 21 million in two tranches this month; and shares worth 1 million and 1.1 million earlier this year. Not just him, employees at the bank have sold shares worth 3.98 billion in 2019. Meanwhile, foreign portfolio investors (FPIs) have reduced their stake from 43.23% in June to 40.81% in September. Dodge And Cox International Stock Fund and Government Of Singapore have slightly lowered their stake from 4.91% and 1.7% to 4.47% and 1.63% respectively.
Employees and FPIs checking out is no reason for worry according to analysts who believe the bank’s fundamentals will continue to improve. Its net NPA dropped to 1.74% from 4.05% in September 2018, whereas net interest income rose by 25% YoY. The Morgan Stanley Research report adds, “Asset quality is improving and credit costs will continue to decline. This should take ROE to >17% by FY22, which is not priced in,” their report mentions.
Mutual funds (MFs) are also bullish on the stock and have increased their stake in September from 27.97% to 29.66%. The largest MF in the stock, HDFC MF, has reduced its stake from 5.26% to 5.19%, but given that the price has run up, it could have reduced its holding further, which might get reflected in the December quarter. Meanwhile, the second largest fund in the stock, SBI MF, has upped its holding from 3.66% to 4.19%.