Indian investors are cozying up to Axis bank. Know why

Axis Bank and ICICI Bank share a similar profile in terms of corporate exposure and funding roads, power companies, etc, still there could be a divide emerging between the two.

The stock performance of the two banks clearly point out the divide as the latest quarter financial performance indicate investors believe that Axis Bank is better place than ICICI.

The past year saw Axis outperform ICICI by a huge margin. Axis rose 68.71% in the past year when compared with ICICI, which gained 12.23%. The broader BSE Bankex rose 21%.

ICICI Bank's March quarter earnings rose 10.2% to Rs 2,922 crore, while Axis reported an 18.36% advance to Rs 2,180.6 crore.
"Axis' earnings growth for the past few quarters has been at 18% while that of ICICI Bank has been at around 10%. Its growth is almost double, which is driving investors to the stock," Vaibhav Agrawal, Vice President research - banking at Angel Broking told Economic Times, adding "Axis Bank's asset quality has been steady while ICICI Bank has seen a rise in its net nonperforming loans. This has also been a positive for Axis Bank."

Meanwhile, Anish Tawakley, analyst with Barclays, said for ICICI Bank, the slippages from the restructuring book are very high as loan exposures come out of the moratorium.

"In large corporates, there can be some lumpy accounts. Even if the economy picks up, they can see stress as they are highly leveraged,” he told ET.
Even though Axis and ICICI apparently emerged from their past issues - partly created by the economic slowdown that saw bad loans of the industry's largest bank rise to 1.40% of total assets - investors seem to choose former over latter.

"As far as the impact of NPA additions is concerned, as the bank has previously explained, the higher slippages to NPA have come mainly from the existing restructured portfolio; hence the impact on NII and margins is not significant," an ICICI Bank spokesman told the financial daily.

Both ICICI and Axis are run by chips of the same block - Chanda Kochhar and Shikha Sharma - who rose up the ranks at ICICI under KV Kamath.

The newspaper reported that Sharma, who spent almost three decades at the ICICI Bank Group before moving to head Axis Bank in 2009, showed some aggressive management style by buying Enam Securities for Rs 2,070 crore, while Kochhar spent steadying the ship by pulling back funds from overseas businesses.

"Asset quality continues to be challenging due to the tough operating environment and the economic recovery being slower and volatile," Kochhar said during the post-earnings call. In the past few years, she said.

Kochchar added that restructuring was done keeping in mind assumptions of a possible turnaround in the economy. "But the pick-up in economic activity has been gradual and volatile affecting these companies. Asset quality in 2016 will be better than last year," said Kochhar.

"The asset quality environment continues to be challenging with economic activity being weak," V Srinivasan, executive director at Axis Bank, told ET, adding, “We will have to monitor our exposure."