India's banks have led the recent record-breaking rally in Mumbai. But with ICICI Bank in particular up a stunning over 30% this year, are these stocks priced for something more than perfection? ICICI IBN seems to have curbed a two-year streak of active contraction in its top line business as the credit crunch recedes into the distance.
That is the good news. The bad news is that the bank has kept its bottom line margins intact largely through cost cutting, not through rebuilding its key insurance and brokerage businesses. Lending activity is reviving, but it is off a low base.
And while overseas subsidiaries add global heft to the bank's footprint, they are also finding growth hard to come by. Meanwhile, IBN is priced at a very rich 29 times estimated current-year earnings. That is fairly expensive by emerging market bank terms -- remember, you can buy into a true global contender like Brazil's Itau Unibanco ITUB for about a third of that price on an earnings basis.
IBN is one of the best Indian banks that U.S. investors can buy into. But until the company can deliver real growth -- and not just cost cuts -- it may be best for long-term horizons. For now, further upside may be hard to come by.