The banks have been on a rise on the back of the expansion of loan portfolios and the decline in nonperforming loans, which have helped banks gain investor favor. The Nifty Bank index hit its all-time high of 42,250.75 on November 11.
Axis Bank vs Kotak Bank vs IndusInd Bank: Which is a better investment option for long-term? MintGenie asks 4 analysts
Axis Bank, Kotak Mahindra Bank and IndusInd Bank are three private sector lenders in focus on the back of this rally in the entire banking space. Let's find out which one is a better investment for investors with a long-term game plan.
Stock price trend
Among these three private sector lenders, Axis Bank has gained the most in the last 1 year, up over 15 percent followed by IndusInd Bank, up nearly 10 percent and finally Kotak Bank, which has underperformed the two and the banking index to fall a little over 8 percent in this time. In comparison, the Nifty Bank has added 6.5 percent in the last 1 year.
On a YTD basis, IndusInd Bank has topped, with over 28 percent rise closely followed by Axis Bank, up 25 percent in this time. Meanwhile, Kotak has gained 6 percent in this year so far.
In the 11 months of the year so far, Axis has been in the green for 5 of them and in the red for the remaining 6. It surged the most in October, up 23 percent followed by in January and July, up 14 percent each. Meanwhile, it has lost the most in June, down 7 percent followed by in November (so far), down over 6 percent.
On the other hand, IndusInd Bank has given positive returns to its investors in 6 of the 11 months if 2022 so far and negative returns in the remaining 5. It rose the most - 31 percent, in July followed by 7 percent in June, whereas it fell the most in June, doen 14.5 percent. In November so far, the stock has lost 0.4 percent.
Finally, Kotak Bank has risen in 7 o the 11 months of 2022 and fallen in the remaining 4. It rose the most in July, up 9 percent and fell the most in June, down 11 percent. In November so far, it is flat, up 0.1 percent.
Axis Bank reported a consolidated net profit of ₹5,330 crore, up 70 percent for the quarter ended September 2022, as against ₹3,133 crore in the year-ago quarter. The lender's net interest income (NII) grew 31 percent year-on-year (YoY) to ₹10,360 crore from ₹7,901 crore in the last year quarter.
Net interest margin (NIM) for Q2FY23 came at 3.96 percent, up 57 bps YoY and 36 bps QoQ. The strong growth in the bottom-line was on the back of lower provisions. Provisions in the quarter under review fell to ₹550 crore, as against ₹1,735 crore a year ago. The bank's asset quality also improved further during the reporting quarter. The gross non-performing asset ratio dropped to 2.5 percent as on 30 September, 2022, from 2.76 percent a quarter ago and 3.53 percent a year ago.
IndusInd Bank reported a sharp 60.4 percent YoY rise in net profit for the quarter ended September to ₹1,787 crore. Net interest income for the quarter rose nearly 18 percent to ₹4,302 crore.
Provisions during the quarter fell over 33 percent on year to ₹1,141 crore. In the previous quarter, provisions stood at ₹1,250 crore. The private sector lender’s asset quality also improved during the quarter, with the gross non-performing asset ratio dipping to 2.11 percent from 2.35 percent a quarter ago and 2.77 percent a year ago.
Kotak Bank posted a 21 percent YoY rise in the profit after tax (PAT) at ₹3,608.18 crore for the September 2022 quarter. It reported a PAT of ₹2,899.74 crore in the same quarter previous year.
Its net interest income (NII) stood at ₹6,620 crore for July-September 2022 period, up 24 percent from ₹5,353 crore in the year-ago period. The lender reported a net interest margin (NIMs) at 5.17 percent for Q2FY23, which was 4.45 percent in the year-ago period
Asset quality also improved in the quarter under review. Gross NPAs slipped to 2.08 percent during the said quarter from 2.24 percent in the June 2022 quarter and 3.19 percent in the September 2021 quarter. Total provisions dropped sharply on yearly basis to ₹136.5 crore in the quarter from ₹435.25 crore in the year-ago period.
Where should you invest?
Among the three stocks, Deepak Jasani, Head of Retail Research at HDFC Securities has picked Axis as his top pick.
Going by the difference between the CMP and our target prices for a year, Axis Bank could offer the most upside, he said.
Ajit Kabi, Banking Analyst at LKP Securities has also chosen the same.
"Axis Bank, Kotak Mahindra Bank and Indusind Bank have delivered a satisfactory result in 2QFY23. As per as growth is concerned, Axis Bank and Kotak Mahindra Bank have reported strong growth. The margin of the banks has also improved because of a higher share of floating-rate loans. On the asset quality front, NPA levels have decreased meaningfully. However, we believe, that Axis Bank is undervalued factoring growth prospects, balance sheet size, and improved asset quality. Axis Bank along with Bank of Baroda are our top picks in the Banking space," he stated.
Meanwhile, Vinit Bolinjkar of Ventura Securities likes Kotak as well as Axis.
"While over the long term Kotak Bank is the most preferred stock among the 3, we also like Axis Bank given the recent turnaround numbers posted by the lender and the acquisition of Citi's credit card business. Also, the cheap valuation of Axis Bank (1.8x FY24 P/B) should mean that the stock will outperform its peers in the short term," said Bolinjkar.
Between Kotak Bank and IndusInd Bank, Dnyanada Vaidya, Research Analyst, Axis Securities has chosen Kotak (since the brokerage could not comment on Axis Bank).
"We like Kotak Mahindra Bank, given that it remains best placed across metrics, with a best-in-class liability franchise, strong execution capabilities, robust credit growth prospects, and prudent underwriting. The bank also has adequate margin expansion levers in place given the improved share of unsecured retail loans in the asset mix and higher share of floating loans enabling faster repricing. Asset quality trends remain healthy and should keep credit costs muted," Vaidya explained.
However, Mohit Batra, Founder & CEO, MarketsMojo noted that they prefer public sector banks to private ones.
According to Jasani of HDFC Securities, Bank Nifty needs to close above 41,840 for a few more sessions before we can treat it as a valid long-term break out. If and when it manages to do that, it may then continue to hit new highs before any major correction, he added.
"Q2 has been all-around strong performing for most banks. Credit growth has remained buoyant, and management commentary around growth is encouraging. Banks with a higher share of floating-rate loans have seen the benefits of faster repricing on their margins. Asset quality and restructured book trends, too, have been healthy and are expected to continue, translating into lower credit costs, resultantly driving earnings growth for banks. We expect a similarly strong performance delivery by banks in the coming quarters supported by sustained credit growth momentum, strong capital adequacy, and lower asset quality stress," stated Vaidya of Axis.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.