The market is too pessimistic about the payoff from new funding. Lending growth should outweigh thinner spreads and more normal loan losses, supporting a $35.35 twelve-month target. The key test is whether margins begin recovering by March 2027.
Key points
- ₹119,000 crore of net interest income forecast for FY2028 supports recovery.
- 0.50% annual loan-loss charges assumed, above September's unusually low expense.
- $35.35 twelve-month target supports Buy despite weak relative performance.
The call
The market is too pessimistic about the funding payoff. At my 18-times earnings multiple, today's price implies annual group profit of roughly ₹59,800 crore. That is below September's annualized profit, although that quarter benefited from unusually low loan-loss charges.
Lending is outrunning the cheapest depositsICICI Bank Q2 FY2027 release and call, October 17, 2026; year-over-year growth (%)
I expect growth to outweigh thinner lending spreads. My FY2028 forecast assumes a 4.14% net interest margin, lending income less funding costs relative to earning assets. HDFC's latest call independently supports stronger borrowing demand. March's promised margin recovery is the test, not headline loan growth.
Valuation
| Driver | Our estimate |
|---|
| FY2028 net interest income | ₹119,000 crore |
| FY2028 loan-loss expense | ₹11,000 crore |
| FY2028 earnings per US depositary share | $1.96 |
| Core earnings multiple | 16 times |
| Deposit-franchise premium | 2 times |
| October 2027 target | $35.35 |
Earnings use ₹100 per dollar and 7.3 billion diluted ordinary shares, with two ordinary shares per US share. The customer-deposit premium contributes $3.93 per US share; persistent funding pressure would remove it. The target uses unrounded earnings, with no agricultural-provision release assumed.
A weaker rupee reduces the dollar payoffOur FY2028 earnings forecast and 18-times multiple; rupees per dollar scenarios, October 19, 2026
Risks
- Funding gets dearer: watch whether cheap current and savings deposits keep trailing loans.
- Credit losses rise: watch new bad loans and the April 2027 expected-loss rules, which require earlier recognition of likely defaults.
- Dollar returns lag local profits: watch the rupee and foreign-investor withdrawals; the stock's year-long market lag argues against assuming a rapid recovery.
What would change my mind
I would withdraw the Buy if margins fail to recover by June 2027 while annualized loan-loss charges exceed 0.60% of loans.