Icici Bank and HDFC Bank report earnings Saturday, as shares of the two major India-based banks try to snap out of price consolidations.
Both stocks performed well this year as IBD's foreign banks industry group climbs nearly 20% year to date, and more than 30% from the April 9 low on relief of U.S. tariffs. But the bank stocks are in uncertain patterns, with their direction possibly at stake in the weekend's reports.
Analysts polled by FactSet expect Icici Bank earnings of 39 cents a share in U.S. dollars, an increase of 5% year over year. EPS climbed 10% to nearly 15% the past four quarters. Revenue for the fiscal quarter ended in June is expected to edge up 1% to $3.188 billion.
The consensus estimate for HDFC earnings is 80 cents a share, also for an increase of 5%. EPS was down 1% to up 4% the previous four quarters. Fiscal Q1 revenue is seen rising 3% to $4.949 billion. EPS estimates for both banks have trended higher over the past few months, FactSet shows.
Bank Earnings Due Amid Margin Woes
The bank earnings come at a time when India's banks struggle with margin pressures, weak fee income and rising credit costs, reports say.
Bloomberg reported Friday that profits at HDFC Bank and Icici Bank could come under pressure from loan growth that has slowed to a three-year low, while interest-rate cuts by the central bank shrink margins.
The Reserve Bank of India has cut 100 basis points from its target rate since the start of the year and taken other steps to boost the economy.
Icici Bank, HDFC Stock Action
Icici stock is forming a flat base with a 34.50 buy point, according to IBD MarketSurge pattern recognition. The stock is up more than 11% year to date, and most of that gain occurred in March and April. A breakout from a 31.99 buy point in a cup-with-handle base resulted in an 8% rise to the high in May.
The relative strength line is lagging, and the Relative Strength Rating is 61 out of 99. That's reason to be cautious in buying the stock if it breaks out to new highs. But its Composite Rating is 96, one of the highest in the foreign banks industry group.
Icici stock has a 21-day average true range (ATR) of 1.07%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
HDFC Bank shares are up 18% year to date, after the stock rallied 31% from a low in March to a weekly closing high in early June. The stock has been erratic since then, pulling back to the 10-week moving average and springing up from support the last full week of June.
HDFC is testing the 10-week line again ahead of the earnings report. Despite uneven price action, the stock is near its most recent buy point at 75.37. The stock is finding support at the 50-day moving average. But the relative strength line is also trending lower, while the RS Rating is a mediocre 79.
The stock has a 21-day ATR of 1.28% and a Composite Rating of 89.
