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Why IndusInd Bank’s shares are top gainers on Nifty

In Q2, deposits from retail and small businesses constituted 41% of IndusInd Bank’s total deposits. (Photo: Company website)Premium
In Q2, deposits from retail and small businesses constituted 41% of IndusInd Bank’s total deposits. (Photo: Company website)

  • As such, improving systemic credit growth has had a positive impact on bank stocks. IndusInd Bank’s shares are not an exception to this and are now hovering near their 52-week highs of 1,275.80 apiece. Taking into account today's gains, IndusInd’s shares have risen nearly 30% so far in FY23

Shares of IndusInd Bank Ltd. surged 5% in early deals on Tuesday, a day when the Nifty50 index rose about 2%. Thee stock was the top gainer on the index today.

Not without reason. Late on Monday, the bank released its business update for the three months ended September (Q2FY23). The lender witnessed healthy momentum in Q2, with its loan book growing 18% year-on-year (y-o-y) and 5% sequentially. "We believe loan growth is led by an uptick in retail loan growth (commercial vehicle and MFI) that also make better margins," said a Jefferies report dated 3 October. Note that in Q1, the retail segment accounted for 54% of the bank’s loan portfolio. Within this, the loan mix of vehicle finance stood at 48% and that of MFI (micro-finance institutions) was 22%.

Coming to deposits, in Q2, overall deposits rose 15% y-o-y and 4% quarter-on-quarter (q-o-q). Here, deposits from retail and small businesses grew 4.7% q-o-q. In Q2, deposits from retail and small businesses constituted 41% of IndusInd Bank’s total deposits. The bank’s current and saving accounts (CASA) ratio came around 42.4%, which is down 80 basis points sequentially. One basis point is one-hundredth of a percentage point.

As such, improving systemic credit growth has had a positive impact on bank stocks. IndusInd Bank’s shares are not an exception to this and are now hovering near their 52-week highs of 1,275.80 apiece seen on 20 September. Taking into account Tuesday’s gains, IndusInd’s shares have risen nearly 30% so far in FY23.

“Improvements in asset quality, particularly in the MFI/Restructuring book, and CV demand outlook will be a key monitorable," said a report from Motilal Oswal Financial Services dated 4 October.

Further, a drop in credit costs should also aid earnings performance. Even so, given the sharp appreciation in IndusInd stock, investors seem to be factoring in a good chunk of the optimism into the price.

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