The merger between HDFC Bank and ICICI Bank is expected to narrow the valuation gap between the two banks. Historically, HDFC Bank has commanded a higher valuation premium, but in recent years, ICICI Bank has shown consistent earnings performance and growth. Post-merger, HDFC Bank s net interest margin is expected to decline due to an increase in the share of mortgages in its loan mix. However, HDFC Bank s investment thesis remains solid, with the bank confident of sustaining healthy loan growth. Despite being bullish on HDFC Bank, most analysts predict similar valuation multiples for both banks in the near to medium term.
Shares of HDFC, which has merged with HDFC Bank, surged over 3% as traders sought arbitrage opportunities ahead of the delisting date. The merger deal will create the world s fourth largest bank in terms of market value. Analysts expect the merger to result in strong growth and profitability, with a 15.7% market share. The bank is expected to see loan and deposit growth of around 17% and 19%, respectively. The merger became effective on July 1, with a share swap ratio benefiting HDFC shareholders. The record date for share allotment under the merger deal is July 13.