IndusInd Bank shares surge over 4% in two days amid MSCI rebalancing expectations

Shares of IndusInd Bank rose by over 3% on January 14, trading at ₹973.90 on the BSE, driven by optimism around the expected rebalancing of the MSCI Index in February 2025. The stock has gained 4% over the past two days, bolstered by reports of reduced foreign portfolio investor (FPI) holdings.

Key Highlights:

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  • FPI Stake Reduction: FPIs reduced their stake to 46.63% in December 2024, from 55.53% in September 2024, increasing foreign headroom to 25%.
  • MSCI Index Impact: ICICI Securities estimates that the rebalancing could bring inflows of ₹2,000–₹2,400 crore, further boosting investor sentiment.

Brokerage View:

ICICI Securities noted that the MSCI rebalancing is expected to have a short-term positive impact on IndusInd Bank’s valuation. However, it emphasized the need to monitor the bank’s asset quality trends, particularly in its microfinance institution (MFI) segment.

Recent Performance:

Despite the recent surge, the stock has underperformed over the past six months:

  • Down 33%, compared to a 5% decline in the BSE Sensex.
  • Hit a 52-week low of ₹927 on December 20, 2024.

Q3 FY25 Financial Performance:

  • Deposits: Declined by ~1% QoQ; CASA ratio fell to 34.9% (from 35.9% in Q2 FY25 and 38.5% YoY).
  • Advances: Grew by 2.8% QoQ and 12.3% YoY.
  • Credit-Deposit Ratio: Rose sharply to 89.6%, from 86.5% in the previous quarter.

Challenges Ahead:

  • Deposit Struggles: Decline in CASA and total deposits raises concerns about the bank’s ability to establish a strong deposit franchise.
  • Retail Lending Issues: Weak performance in MFI and auto finance segments due to macroeconomic headwinds and adverse demand cycles.