Indian equity markets face a cautious start to the week as investors shift focus from headline earnings to forward guidance across key sectors, according to market expert Nischal Maheshwari. While recent quarterly results from banking, IT, and Reliance have largely met or fallen short of expectations, the banking sector emerges as a bright spot with improving visibility for growth.

Banking Sector Shows Resilience Despite One-Time Provisions

The banking sector delivered largely strong earnings, with HDFC Bank and ICICI Bank demonstrating solid underlying performance despite facing one-time provisions linked to priority sector lending (PSL) norms. Maheshwari emphasized that beyond these temporary impacts, both banks showed robust fundamentals and provided encouraging forward guidance.

"Otherwise, I think the results were better and their outlook also, both of them guided that they are seeing strong visibility of growth," Maheshwari noted, highlighting the positive trajectory despite temporary headwinds.

Large Private Banks Present Investment Appeal

After a prolonged period of underperformance spanning 1-1.5 years, large private banks now offer compelling investment opportunities due to attractive valuations. The expert expects net interest margins to continue their upward trajectory, providing additional support for earnings growth through FY27.

Maheshwari's outlook for the banking sector remains optimistic: "The NIM profile has improved for both of them and I continue to see that it will continue to improve as you go into FY27." This improvement in net interest margins, combined with reasonable valuations, positions these banks favorably for long-term investors.

Broader Banking Trends and Market Outlook

The banking landscape shows varied performance across different segments, with smaller private banks and PSU lenders currently delivering superior numbers and maintaining strong momentum. This trend is expected to continue in the near term, supported by favorable valuations and operational improvements.

Looking ahead to 2026, Maheshwari expects PSU banks to lead performance in the first one to two quarters, followed by larger private sector banks catching up as their fundamentals and guidance materialize into results.

Additional Sector Insights

Beyond banking, the expert provided perspective on other sectors. Metal stocks, which have experienced a significant rally over the past quarter, may see continued short-term upside, though caution is advised regarding underlying demand sustainability. The real estate sector maintains strong demand fundamentals across major cities including Mumbai, Bengaluru, and Delhi, despite recent stock corrections reflecting stretched valuations rather than weakening demand.

The IT sector results have shown limited positive visibility, with most companies providing muted forward guidance. This contrasts sharply with the banking sector's more optimistic outlook, reinforcing the relative attractiveness of financial services stocks in the current market environment.

Source: https://www.etnownews.com/markets/exclusive-hdfc-bank-icici-bank-attractive-for-long-term-investment-after-underperformance-expert-nischal-maheshwari-article-153471845

HDFC Bank delivered a strong Q3 performance with 12% year-on-year profit growth, contrasting sharply with ICICI Bank's 4% decline. While both private sector banks faced regulatory challenges, their divergent results highlight different operational dynamics and one-time factors that influenced quarterly outcomes.

Financial Performance Comparison

The Q3 results revealed significant differences in profitability between the two banking giants:

HDFC Bank's profit after tax of ₹18,654 crore beat analyst estimates, driven by strong core business performance and favorable one-time factors. ICICI Bank's profit decline to ₹11,318 crore disappointed markets despite the positive news of CEO Sandeep Bakshi's reappointment until October 2028.

Regulatory Provisions Impact

Both banks faced substantial provisions related to RBI's mandate on loans misclassified under agricultural priority sector lending. The impact varied significantly between the institutions:

ICICI Bank's higher agricultural provisions of ₹1,300 crore compared to HDFC's ₹500 crore significantly impacted quarterly results. Management from both banks emphasized that these additional provisions are regulatory requirements and do not reflect actual asset quality deterioration.

Core Business Metrics

Excluding one-time factors, both banks showed mixed core business performance. HDFC Bank's net interest margin rose eight basis points sequentially to 3.35%, while ICICI remained largely flat at 4.30%. HDFC's credit costs declined nine basis points sequentially to 41 basis points, benefiting from improved asset quality trends.

ICICI Bank faced seasonal challenges with farm slippages affecting performance. Interest reversals reduced yields by 21 basis points and added 8 basis points to credit costs, highlighting sector-specific pressures.

Outlook and Strategic Focus

Both banks provided guidance for future performance amid favorable industry conditions. The banking sector expects credit growth of 12-13% in FY27, supported by improved liquidity conditions and reduced stress levels. HDFC Bank's management expressed confidence in outperforming industry growth by 1-3% through continued wholesale credit recovery.

HDFC Bank addressed investor concerns about its credit-deposit ratio reaching 98.5% in the Q3 business update. Management attributed this to seasonality and credit opportunities while reaffirming commitment to reduce the ratio to low-90s by FY27. New branches established within the last five years now contribute one-fifth of incremental deposits, expected to accelerate deposit growth as they mature.

Market Assessment

Nuvama Institutional Equities maintains 'buy' ratings on both stocks with adjusted target prices. ICICI Bank's target price was reduced to ₹1,670 from ₹1,750, representing 2.8x FY27 estimated book value. HDFC Bank's target price remains unchanged at ₹1,170 or 2.7x FY27 estimated book value, reflecting confidence in its operational trajectory despite recent stock volatility.