Markets give their verdict on ICICI Bank, Axis

Valentine's Day 2018 will be memorable for bankers across India, thanks to Nirav Modi and his dealings with state-owned Punjab National Bank. The lid which blew off on February 14 has seen new findings on frauds emerge at regular intervals, throwing the country’s state-owned banking sector into a tizzy.

Soon after the investigation agencies started probing the wrongdoings of Nirav Modi, and his maternal uncle Mehul Choksi of Gitanjali Gems, the Serious Fraud Investigation Office of the Ministry of Corporate Affairs had summoned Chanda Kochhar and Shikha Sharma, managing director/CEOs of ICICI Bank and Axis Bank respectively.

And the series of allegations and negative news flows have not stopped thereafter. While ICICI Bank's Chanda Kochhar has been on the radar for an alleged conflict of interest owing to her husband's business relationships with the Videocon Group, where ICICI Bank has sizeable non performing assets, Shikha Sharma, who has been heading Axis Bank since 2009, has been in the news for the bank’s dismal performance. The latest development is the reported communication to the Axis Bank board by banking regulator Reserve Bank of India urging the reconsideration of Sharma's fourth tenure of three-years extended in July last year.

While the respective banks have been defensively fielding off questions while guarding their respective top bosses, the stock markets have been telling their own tale on these two banks based on the flow of news relating to the two entities and their CEOs.

For context, we chose to see both the banks' price to earnings ratio, price to book ratio, market value, and share prices in relation to the broader market and the banking index. All between February 14 and April 2.

Both the banks’ share prices (and hence market value as well as valuation indicators) have been affected owing to the developments in the aftermath of February 14. However, ICICI Bank, often seen as a breeding ground for future leaders in the banking sector, has seen way more value destruction compared to Axis Bank.

Clearly, market participants who live by the Gujarati saying 'Bhav Bhagwan Chhe' (which translated literally means that 'Price is God'), would just see the falling prices as a reason to either buy or sell. There’s no judgment call there.