Indian Bank hits over 4-year high on FII buying; stock jumps 12% in 2 days

Shares of Indian Bank rallied 4 per cent to hit over four-year high of Rs 322.5 per share in Tuesday’s intra-day trade, amid heavy volumes. The stock traded at its highest level since September 2018, and hit a record high of Rs 428 in November 2017.

In the past two trading days, the stock price of state-owned lender surged 12 per cent, as compared to nearly 1 per cent decline in the S&P BSE Sensex.

The average trading volumes on the counter jumped nearly three-fold, as around 3.2 million shares changed hands on the NSE and BSE till 11:09 am.

Since March 2022, Indian Bank’s market price more-than-doubled or zoomed 110 per cent from Rs 153.80, on foreign institutional investors (FIIs) buying. The foreign investors increased their stake in the bank for the fourth straight quarter. FPIs doubled or hiked their stake in Indian Bank by 2.5 percentage points to 4.2 per cent at the end of March 2023 quarter. They held 1.7 per cent holding in the PSU bank at the end of March 2022 quarter, shareholding data-pattern shows.

Meanwhile, Indian Bank benefited the most from its merger with east-India based Allahabad Bank, in terms of CASA, which stands high at 40 per cent amongst peers. However, CASA is under pressure for most banks due to cannibalisation towards TDs as well as competition from NSS (National Saving Schemes), and other alternative investments.

Analysts at Emkay Global Financial Services believe that the bank has been rationalising its branch network since long post-merger, and would now look to expand the network to new SA/retail deposit pockets, for mobilising deposits.

"The bank will also focus on NRI/HNI deposit pockets, with targeted deposit products. The management understands that such measures will bear fruit in the medium-to-long term and, thus, its immediate focus will be on sweating existing branch network and client relationships, while managing credit growth in sync with deposit growth to maintain ALM," the brokerage firm said.

Moreover, the brokerage firm expects the bank to report 0.8 per cent RoA in FY23E and reach 1 per cent by FY24E/FY25E, led by a healthy margin trajectory, improving fees (incl. PSLC) and normalization of credit cost (1.1-1.2 per cent, from a high of >2 per cent).

"Additionally, Indian Bank is one of the few PSBs to remain well capitalised, with CET 1 at 13.2 per cent (including 9MFY23 profit), thus, posing no risk of equity dilution for investors, unlike peers. The current MD & CEO’s term is till Sep-2024, post which he will be eligible for a 2-year extension before superannuation," the brokerage firm added, retaining a 'buy' on the counter, with a target price of Rs 375 per share.