Federal Bank shares jump as lender eyes deposit-driven growth – what else is driving shares

Federal Bank shares were in demand during Wednesday’s trading session on the exchanges. The stock quoted a day’s high level of Rs 133.05 per share, up around 3 per cent from Tuesday’s closing of Rs 129.1 per share on the BSE today.

At around 01:05 PM, the scrip was up around 3 per cent to Rs 132.95 per share versus a 0.61 per cent rise in the Sensex.

The stock witnessed a buying sentiment on positive management commentary at the Analyst Day meet on Tuesday. The management said “Deposits have grown faster than Advances providing significant headroom for future growth.”

The bank’s management aims to grow the loan book in the high teens, driven by digital and fintech partnerships, and continue to focus on growing its high-margin products by leveraging data analytics.

Besides, a rating agency India Ratings has rated Federal Bank’s additional limits of Basel III Tier 2 Bonds and affirmed existing bonds at ‘IND AA’ with a positive outlook, the private lender said in a separate release on February 28, 2023.

Also Read: Federal Bank Q3 Results: Profit, NII jump to record highs as asset quality improves

“The positive outlook reflects the consistent strengthening of bank’s credit profile as reflected in its progressing liability franchise, improving diversification of its loan portfolio, reasonably well-managed asset quality and stable credit costs,” India Ratings in its comment on Federal Bank.

Most global brokerages are upbeat on the bank after positive commentary by management and see up to 36 per cent upside potential in the stock. Morgan Stanley maintains an ‘overweight’ rating, while UBS has a ‘neutral’ call and CITI retained a ‘buy’ stance on the bank.

Morgan Stanley said that improving the loan mix towards higher-margin assets will be the key focus over the next 3 years for Federal Bank. While UBS said that the management is optimistic about key business drivers as well as reaffirmed net interest margin (NIM) and return on asset (ROA) guidance.

Even domestic brokerage firm Motilal Oswal has a ‘buy’ rating on Federal Bank with a target of Rs 170 per share as it believes the lender is well placed to deliver RoA expansion, led by controlled credit costs and a rise in the mix of high-yielding segments.

Federal Bank share price: Historical performance

Federal Bank share price has given decent returns to its investors in the last one year as the stock gained around 38 per cent during the said period as compared to a nearly seven per cent rise in the S&B BSE Sensex.

The stock in the last six months grew around 12 per cent against almost 1 per cent rise in the benchmark index during the same period.

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