HDFC Bank gains mutual-fund buying as ICICI is sold

By the end of August, ICICI Bank still remained the bigger mutual-fund holding by value at Rs 3.03 lakh crore, versus Rs 2.85 lakh crore for HDFC Bank, according to Prime Database. But the direction of flows changed after both names were bought in May: HDFC Bank kept attracting net buying in the following months, while ICICI Bank saw net selling.

That divergence is striking because HDFC Bank has badly lagged, while ICICI Bank has outperformed and continued to command a larger share of fund assets. The preference shift suggests investors are not simply fleeing quality, but are hunting for the stock with the larger upside if its fundamentals stabilize.

For HDFC Bank, the key catalyst is leadership clarity. The bank is still searching for a new chief executive, and brokerages say the next boss will need to accelerate loan growth, improve deposit mobilization, lift returns and restore confidence around governance and senior-management stability. Jefferies said clarity on leadership and better business momentum could help a broader rerating.

That valuation argument is central to the trade. Jefferies estimates HDFC Bank trades at 1.5 times FY27 adjusted book value, about 30% below ICICI Bank, 15% below Kotak Mahindra Bank and roughly in line with Axis Bank. Kotak Institutional Equities said the stock is trading at “more or less ex-growth multiples” despite forecasting a 10% earnings-per-share compound annual growth rate between fiscal 2024 and fiscal 2026.

The market is effectively weighing a turnaround story against execution risk. Jefferies sees HDFC Bank’s retail franchise, deposit base, branch expansion and merger synergies as positives, but also warns of integration friction, slower deposit growth and pressure on priority-sector lending. Nomura said the next CEO must also rebuild confidence after years of board and management changes.

ICICI Bank’s position is more straightforward: it has been the stronger performer and still sits in more mutual-fund portfolios by value. But recent selling indicates some managers are locking in gains or rotating toward a cheaper laggard with a clearer rerating case, rather than chasing a stock that already has the market’s confidence.

The immediate investor focus now turns to who takes charge at HDFC Bank and whether the lender can show faster growth and better deposit traction. If it does, the current flow reversal could become the early stage of a broader catch-up trade in Indian banking.