IndusInd Bank shares snub bears at D-St after Q2 results; Here's what is pushing the stock higher

IndusInd Bank surged more than 3 per cent on Thursday, in an otherwise weak market, after reporting a strong performance in the period ended on September 30, 2023, positive outlook by global and domestic brokerage firms and likely inclusion in MSCI indices next month. IndusInd Bank reported a 22 per cent jump in the net profit on a year-on-year (YoY) basis to Rs 2,181.5 crore for quarter ending September 30, 2023 as compared to Rs 1,786.7 crore during the same quarter previous year. The net interest income (NIIs) increased about 18 per cent YoY to Rs 5,076.7 crore, against Rs 4,302 crore in the September 2022 quarter. The net interest margin (NIMs) of IndusInd Bank rose 4.29 per cent for the second quarter of the ongoing financial year. Its gross non-performing asset (NPAs) came in at 1.93 per cent, improving marginally from 1.94 per cent on quarter-on-quarter (QoQ) basis. Net NPAs stood at 0.57 per cent, against 0.58 per cent in Q1FY24. IndusInd Banks' earnings for Q2FY24 are healthy and broadly in line, but we view them as mixed because slippage exceeds expectation, deposit growth lags loan growth, core fee growth is weak and the bank continues to draw down buffer provisions, said Nuvama Institutional Equities with a buy rating and a target price of Rs 1,665. The CEO remains confident that retail slippage would ease from 3.7 per cent now to sub-3 per cent in H2FY4, and firmly guided for no more drawdown of buffer provisions and better deposit growth. We shall watch out if this plays out in the next quarter, it added. According to Nuvama Alternative & Quantitative Research, IndusInd Bank expected to be included in MSCI with a 0.5 factor in the November 2023 review after filing its shareholding pattern. The stock should likely qualify on the grounds of shareholding pattern, it said. The lender has updated its September 2023 shareholding in their presentation. Granua reporting is still pending - which is important and should ideally come soon. The foreign shareholding has decreased to 62.61 per cent, meeting the minimum headroom requirement of 15 per cent, it said. IndusInd's inclusion is anticipated to bring in an inflow of $280 million, equivalent to approximately 16 million shares or an ADV of 5.5 days. It's worth noting that this inclusion event has been widely anticipated, and some of the impact has already been factored into the stock price, Nuvama Alternative & Quantitative Research added. Bucking the weakness in the markets at large, shares of IndusInd Bank surged more than 3 per cent to Rs 1464.25 on Thursday, with a total market capitalization more than Rs 1.15 lakh crore. The scrip had settled at Rs 1,420.80 in the previous trading session on Wednesday. IndusInd Bank reported 22 per cent YoY earnings growth, led by 10 per cent YoY operating profits growth and 15 per cent YoY provision decline. NIM was stable QoQ at 4.3 per cent, loan growth was solid at 20 per cent YoY and asset quality was broadly unchanged QoQ, said Kotak Institutional Equities. "Focus is shifting toward strengthening the franchise, especially on liabilities, which would imply near-term RoEs closer to current levels. A meaningful outperformance looks unlikely, but we do believe that the cyclical tailwinds to reduce credit costs bring a credible positive investment thesis among peers," it added, maintaining a 'buy' rating with a fair value of Rs 1,600 per share. Prabhudas Lilladher pegs the stock at Rs 1,620 apiece, with a buy tag. It cited strong liability accretion, reduction in cost to income and creation of buffer provisions with decline in credit costs as levers for rerating of the stock in future. Another domestic brokerage, Emkay Global, expects IndusInd Bank to hit Rs 1,825 apiece. Among the global brokerage firms, Morgan Stanley remains 'overweight' on the lender but has reduced its target price to Rs 1775 apiece. However, HSBC and BofA Securities have maintained their 'buy' ratings on IndusInd Bank with a raised target price at Rs 1750 and Rs 1,680 per share.