IndusInd Bk up 4% in 2 days as reports indicate higher weight on MSCI index

Foreign portfolio investors reduced their stake in IndusInd Bank to 46.63 per cent in December 2024, from 55.53 per cent in the September 2024 quarter, enhancing foreign headroom at 25 per cent

Shares of IndusInd Bank were trading higher by 3 per cent, at Rs 973.90 on the BSE in Tuesday’s intraday trade on reports that the private sector lender is set to gain a higher weight on the MSCI index in February’s rebalancing, driven by a reduction in foreign portfolio investor (FPI) holdings. In two days, the stock has gained 4 per cent.

 

FPIs reduced their stake to 46.63 per cent in December 2024, from 55.53 per cent in the September 2024 quarter, enhancing foreign headroom at 25 per cent. The rebalancing is expected to bring inflows of Rs 2,000–2,400 crore, boosting investor sentiment, ICICI Securities said in a note.

 

MSCI index rebalancing is likely to drive positive sentiments among investors and may result in a short-term rise in valuation for the company, although asset quality trend amid the bank's exposure to micro finance institution (MFI) segment will likely remain in focus, the brokerage firm said.

 

However, in the past six months, IndusInd Bank has underperformed the market by falling 33 per cent, as compared to the 5 per cent decline in the BSE Sensex. The stock had hit a 52-week low of Rs 927 on December 20, 2024.

 

IndusInd Bank has delivered another lower-than-expected performance during the October to December quarter (Q3FY25), with a negative surprise on the deposit front whereby total deposits have declined by around 1 per cent quarter-on-quarter (QoQ) (+12 per cent year-on-year (YoY)), whereas Advances have grown by approximately 2.8 per cent QoQ (+12.3 per cent YoY), resulting in a steep rise in CD ratio to around 89.6 per cent against approximately 86.5 per cent during the September 2024 quarter (Q2FY25). CASA ratio for the bank also witnessed a decline to around 34.9 per cent, against approximately 35.9 per cent last quarter and around 38.5 per cent last year.

 

A sequential decline in total as well as CASA deposits during Q3FY25 indicates an inability of the top management to create a healthy deposit franchise for the bank. Bharat Financial acquisition was expected to create a deep rural deposit franchise for the bank, which has also not played out till date. Such deposit struggles will weigh over IndusInd Bank’s ability to convert into a large private sector bank, InCred Equities said in a stock update for the company.

 

IndusInd Bank has been struggling on the lending growth front, especially on retail lending, since the past few quarters, whereby MFI segment of the bank (Bharat Financial) has been facing severe macroeconomic headwinds whereas the auto finance business is struggling with adverse auto demand cycle.  The bank’s non-vehicle retail loans book mainly consists of personal loans and credit cards, which also remains out of flavour for now, the brokerage firm said.

 

“We expect margin to be stable in Q3FY25 as improvement due to LDR to be knocked off by a rise in secured products. We are closely monitoring the asset quality trend for the bank considering large MFI and vehicle finance portfolios as well as a recent surge in small corporate portfolio of the bank,” the brokerage firm said, while maintaining its 'Hold' rating on the stock with a target price of Rs 1,350, or around 1.4x FY26F BV.