In the past one-week, the stock of ICICI Bank has outpaced the market by surging 18 per cent after the government announced reduction in the corporation tax
rates. In comparison, the S&P BSE Sensex rallied 8 per cent during the same period.
The government's decision to sharply reduce the corporation tax
rate from 30 per cent to 22 per cent is expected to boost corporate profitability and help banks in multiple ways as this will help boost investment activity over the medium term.
“Corporate banks like ICICI Bank carry higher deferred tax assets (DTAs) on account of lumpy provisions in the ongoing credit cycle which now needs to be marked down to the revised tax rate. Consequently, we expect ICICI Bank’s earnings to see a downgrade in FY20. The full benefit of tax reduction will accrue from FY21, driving earnings upgrade for the bank,” Motilal Oswal Financial Services (MOFSL) said in a financial sector update.
The brokerage firm Antique Stock Broking has ‘buy’ rating on ICICI Bank with the target price of Rs 520 per share, citing bank is best placed to ride the corporate recovery cycle with top quartile liability profile, diversified retail asset franchise, improving core pre provision profit (PPP) to risk weighted assets and CET 1 of 13 per cent.
The decline in non-performing loans (NPL) ratios is underway and while process of NPLs ageing could keep credit cost elevated in the near term; once the legacy issues are behind, low risk construct of its current loan book should lead to sharp decline in credit cost from 2HFY20, it added.
“We believe ICICI’s business is at an inflection point with a large part of corporate stress recognition behind it. As NPLs peak, we believe markets
will start giving a higher value to the company’s strong deposit franchise/leadership in technology, market-leading retail business, and industry leadership in its various subsidiaries,” analysts at JP Morgan said in a report. The brokerage firm has ‘overweight’ rating on ICICI Bank with March 2020 target price of Rs 500 per share.
At 11:30 am, ICICI Bank was the top gainer among S&P BSE Sensex stocks, up 4 per cent at Rs 451, against 1.2 per cent rise in the benchmark index. A combined 18 million equity shares changed hands on the counter on the NSE and BSE so far.