IndusInd Bank sees biggest intra-day rally in 5 months; stock surges 13%

Shares of IndusInd Bank recorded its sharpest intra-day rally in over five months after the stock rallied 13 per cent to Rs 598 on the BSE on Thursday on the back of heavy volumes. Earlier, on April 28, 2020, the stock of the private sector lender had zoomed 18 per cent in the intra-day trade.

At 02:54 pm, IndusInd Bank was trading 12 per cent higher at Rs 589, against a 1.5 per cent rise in the S&P BSE Sensex. The stock was the top gainer on the Sensex, Nifty50, and Nifty Bank indexes. The trading volumes on the counter more-than-doubled as a combined 45 million equity shares changed hands on the NSE and BSE.

IndusInd Bank has underperformed the market by falling 26 per cent from its recent high of Rs 711, touched on August 31, as compared to less than 1 per cent decline in the Sensex till Wednesday.

IndusInd Bank has seen a steady rise in the gross non-performing assets (GNPA) ratio for the past two years to 2.5 per cent, mainly due to high corporate NPAs and lately in commercial vehicles (CV)/micro finance institutions (MFI). MFI collections, which were high at 80 per cent in July'20, slipped to 70 per cent in Aug’20 due to interim lockdowns but have now recovered to 80 per cent. Given the high share of the vulnerable retail portfolio, including CV, PL, LAP, and MFI, NPA formation/restructuring is expected to be elevated for the bank, according to analysts at Emkay Global Financial Services.

“Due to corporate asset quality issues for the past two years and the recent deposit scare after the YES Bank saga, new top management’s long-term stance is to focus on building a granular retail credit/deposit book, increasing provisioning buffer and RoRWA (vs. RoA). The bank has recovered from the deposit scare and the immediate risk of Vodafone default has eased. The Impact of Covid-19 on asset quality is inevitable but its stance to build high credit reserves even at the cost of near-term earnings is the right step,” the brokerage firm said in a company update.

It retains a ‘hold’ rating on IndusInd Bank due to low valuations and reasonable capital position post recent capital raise. The stock, however, is trading above the brokerage firm target price of Rs 550 per share.