Profitability Indicators as Predictors of Market Capitalisation in ICICI Bank, Axis Bank, And Kotak Mahindra Bank

This paper is an empirical study aimed at examining how the main profitability ratios relate to the market capitalisations of the three top banks in the Indian privatised sector: ICICI Bank, Axis Bank, and Kotak Mahindra Bank. The analysis relies on the five years from FY 2021 to FY 2025 using secondary data, where market capitalisation is taken to be the dependent variable and four profitability measures, namely Return on Assets (ROA), Return on Equity (ROE), Net Interest Margin (NIM), and Net Profit, are used as independent variables. Both aggregate and individual bank descriptive statistics, correlation analyses, and simple linear regression models were used. The findings indicate that Net Profit is the best predictor of market capitalisation by a long way. The Net Profit variable has a very strong positive correlation with market capitalisation (explaining almost 74% of the variation) and, in the overall regression, has much stronger explanatory power than either ROA or ROE, and very weak explanatory power in comparison with NIM. The Bank-wise regressions affirm the prevailing Net Profit, with the highest R across all three banks, and predict with high predictive power for ICICI Bank. The weighted scoring system, which combines overall R2, average bank-wise R2, correlation strength, and statistical significance rates, ranks Net Profit as the best indicator, with a flawless composite score, far above ROA, ROE, and NIM. The implications of the findings include that the capitalization of banks in equity markets is more related to the absolute level of earnings rather than the efficiency ratios in isolation, and have a direct implication for the management of the banks and their investors, and analysts in the development of valuation models, performance measures, and strategic focus.