Why IDFC First Bank Share Price is Rising

It's pretty common for the Nifty Bank index to touch record highs these days. Banking stocks have remained FII favourites and made headlines for being unaffected by the global banking crisis and delivering substantial gains.

A lot of Indian banks posted record-high profits in the financial year 2023.

Among the lot is IDFC First Bank, which gave multibagger returns of 160% in the past one year.

Shares of the bank have gained momentum since the past one month as reports state that the bank could be included in the MSCI Standard Index.

Industry experts believe that in the next MSCI review set in August 2023, IDFC First Bank may as well enter the index after the stellar performance.

Let's find out what's driving the rally and whether there's more steam left.

#1 Robust performance in FY23 and Q4

IDFC First Bank witnessed strong growth in earnings for the fourth quarter of the financial year 2023.

Customers' deposits and loan books stood strong during Q4 which pushed net interest income (NII) significantly. NII grew 35% YoY from Rs 26.7 bn in Q4FY22 to Rs 36 bn in Q4FY23.

The lender's net profit more than doubled to Rs 8.1 billion (bn) which is the highest ever in a quarter. The growth was on the back of healthy growth in the its lending book and deposit mobilization.

As of 31 March 2023, the bank's customer deposits soared by 47% to Rs 1,368.1 bn as against Rs 932.1 bn as of 31 March 2022. Loans and advances increased by 24% to Rs 1,606 bn as of 31 March 2023, as against Rs 1,290.5 bn as of 31 March 2022.

For the full financial year, NII climbed 30% YoY to Rs 126.4 bn versus Rs 97.1 bn in financial year 2022. The company's net profit during the same time grew by 1,575% to Rs 24.4 bn.

Gross net performing assets (NPA) sharply declined to 2.51%, improving by 119 basis points (bps) YoY. Meanwhile, net NPA bettered by 67 bps to 0.86% by the end of Q4FY23 as compared to 1.53% in the same period a year ago.

#2 Sectoral tailwinds

Banks are at the heart of any growing economy. As banks grow, the economy grows, and as the economy grows, the banks grow. It's a mutually reinforcing relationship.

After being stagnant for almost a decade, the Indian banking sector's growth finally picked up. Strong credit growth benefitted net revenue, as it coupled with wider net interest margins.

Improved asset quality also boosted investor confidence in 2023. Asset quality improved due to better provisioning, reduced slippages, and increased deleveraging by corporates.

The government's efforts at improving the overall economic scenario also helped the growth. The government's extensive recapitalisation exercise of public sector banks over the years helped them become more self-sufficient.

In short, increased write-offs, higher loan growth supported by slower slippages and improved recoveries were the key factors driving the performance of banking stocks. Little wonder that even the worst-performing Indian banks were doing well in 2023.

What next?

According to industry experts, overall banks' profitability will stabilise after improving in the past few years as the boost from declines in loan-loss provisions wanes.

Credit growth in the financial year 2024 may be slower compared to the growth rate in 2023. In the next 12-18 months, profitability will be steady but improvement in margins will be limited.

IDFC First Bank's management believes that it will come out of any slowdown with ease because it has finally achieved sufficient operating profits. The management expects the current operating profit level to have almost reached the level of permanency.

The bank will expand its reach all over the country to boost credit line growth.

While the management is confident, the bank is likely to face stiff competition from not just larger private sector banks but also fintech companies.

How IDFC First Bank shares have performed recently

IDFC First Bank shares have rallied 21.5% in the last one month. The stock is up 31.9% in 2023 so far.

It gave multibagger returns of 169.9% in the last one year.

IDFC First Bank touched its 52-week high of Rs 84.5 today and a 52-week low of Rs 28.9 on 22 June 2022.

At the current price, IDFC First Bank trades at a PE multiple of 22.18 and a price-to-book value multiple of 2.1x.

About IDFC First Bank

IDFC First Bank (formerly IDFC Bank) is an Indian private sector bank formed by the merger of the banking arm of Infrastructure Development Finance Company and Capital First, an Indian non-bank financial institution.

It is the first universal bank to offer monthly interest credit on savings accounts, lifetime free credit cards with dynamic and low annual percentage rates.

To know more about IDFC First Bank, check out its IDFC First Bank factsheet and quarterly results.

You can also compare companies with their peers.

IDFC First Bank vs RBL Bank

IDFC First Bank vs HDFC Bank

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...