ICICI and HDFC Stocks Rise on Strong Earnings Beat

Strong Performance from Major Indian Banks

Shares of two major Indian banks, ICICI Bank (IBN) and HDFC Bank (HDB), saw significant gains on Monday after both exceeded quarterly earnings expectations. This positive performance came as a result of strong financial results reported over the weekend.

ICICI Bank reported earnings of 40 cents per share for the quarter ending in June, representing an 11% increase compared to the previous year. According to FactSet, revenue also rose by 11% to $3.498 billion. The bank's core lending income increased due to strong loan growth, as reported by Reuters. Analysts had expected ICICI Bank to earn 40 cents per share, with earnings per share (EPS) climbing 10% over the past four quarters. Revenue for the fiscal quarter was anticipated to rise slightly by 1% to $3.191 billion.

HDFC Bank also delivered impressive results, with earnings rising 9% to 83 cents per share, while revenue jumped 28% to $6.171 billion, according to FactSet. The consensus estimate for HDFC earnings was 80 cents per share. EPS for the bank fluctuated between a 1% decline and a 4% increase over the previous four quarters.

Despite the overall slowdown in bank credit growth in India, HDFC's total loan book grew by 6.7% in the quarter, driven by increased lending to small and medium businesses. Additionally, the bank announced its first bonus share issue, which is a form of dividend to shareholders.

Challenges Facing Indian Banks

The positive earnings reports from ICICI and HDFC come at a time when Indian banks are facing challenges such as margin pressures, weak fee income, and rising credit costs. However, HDFC highlighted in its earnings announcement that its "credit performance across all segments continues to remain steady, in a credit environment that remains benign."

The Reserve Bank of India has taken steps to stimulate the economy by cutting its target rate by 100 basis points since the start of the year. These rate cuts have put pressure on bank margins, adding to the challenges faced by the banking sector.

Stock Performance and Technical Analysis

ICICI Bank's stock gapped up by 3% in New York trading on Monday. The stock briefly moved above the 34.50 buy point of a flat base, as noted by IBD MarketSurge pattern recognition. It is now above an early entry point of 34.05 from the June 27 high. Year-to-date, the stock has risen more than 14%, with most of the gains occurring in March and April.

A breakout from a 31.99 buy point in a cup-with-handle base led to an 8% rise to the high in May. However, the relative strength line is lagging, and the Relative Strength Rating (RS Rating) is 62 out of 99, indicating caution for potential buyers. Despite this, the Composite Rating is 97, one of the highest in the foreign banks industry group.

ICICI Bank has a 21-day average true range (ATR) of 1.07%. The ATR is a metric used to gauge the characteristic breadth of a stock’s behavior. Stocks with higher ATRs tend to make larger price moves, which can trigger sell rules. Those with lower ATRs tend to show more incremental movements.

With the S&P 500 and Nasdaq in a power trend, investors may consider stocks with ATRs up to 8%, but they should be cautious about overconcentration in high-octane names.

HDFC Bank shares also gapped up nearly 3% in active trading on Monday, jumping from support at the 10-week line. Despite uneven price action, the stock is above its most recent buy point at 75.37. However, the relative strength line is trending lower, and the RS Rating is a mediocre 79.

HDFC Bank shares are up 21% year to date, following a 31% rally from a low in March to a weekly closing high in early June. Since then, the stock has been volatile, pulling back to the 10-week moving average before rebounding from support in the last full week of June.

The stock has a 21-day ATR of 1.34% and a Composite Rating of 88.

Additional Insights

Investors interested in learning more about assessing a stock's character and measuring volatility can watch the video at Investors.com titled "How To Assess A Stock's Character And Measure Volatility With Average True Range."

Other related topics include the revival of the IPO market, global markets outperforming the U.S., and analyst favorites for earnings growth. Tools like IBD Live provide daily stock market analysis, and certain industry groups are packed with stocks near key buy points.