A Must Have Midcap Bank Stock in Your Portfolio

  • Stock Market Analysis

The benchmark Indian equity indices continued the losing streak for the fifth day in a row. On October 22, the BSE Sensex declined 0.17% and closed at 60,821.62 whereas Nifty 50 plunged 0.35% to settle at 18,114.90. The BSE’s benchmark index plummeted 0.79% week-on-week whereas the Nifty 50 fell 1.22% during the comparison period. The nifty Midcap 50 index shed 3.34% whereas the Nifty Midcap 100 index declined 4.37% week-on-week. Nifty Smallcap 250 indexes tanked 4.77% during the period. The India VIX which underlines the volatility in the markets was 17.55 today compared to 15.77 a week ago. Although markets are looking weak at the moment, there are always opportunities. We have picked up one midcap private bank stock which should continue to do well in the medium term.

Federal Bank Ltd. (NS: FED )

Federal Bank Limited is a private-sector Indian commercial bank with more than 1,200 branches and over 1,900 ATMs/recyclers all over India. The stock forms part of ace investor—Rakesh Jhunjhunwala’s portfolio. The bank has been steadily progressing over the last few quarters in terms of impairment ratios. It has excelled in FY2021 with lower slippages amid the pandemic impact, restructuring, and use of ECLGS (Emergency Credit Line Guarantee Scheme). Lower provisioning has helped the bank to report strong earnings growth in recent quarters. On the liability side, Federal Bank has displayed steady growth in deposits over quarters.

The bank continues to develop a granular liability franchise with retail constituting over 90% of its deposits. Its gold loan portfolio has exhibited a remarkable growth year-on-year with the loan book touching Rs 15,976 crore at end of September 30, 2021. Higher gold prices and relaxations in LTV aided the gold loan portfolio growth. Federal Bank targets to grow its gold loan book by 30%-40% year-on-year. Its total advances have displayed a steady double-digit growth year-on-year with retail advances growing 12% y-o-y. The bank witnessed strong traction in its core fee income over the last few quarters. Wholesale constitutes ~45% of the overall loan book and is expected to decline going forward. Among its private sector peers, Federal Bank appears to be well-capitalized.

Strong operational efficiency, higher net income, and fee income, good mix of liabilities, sharp focus on retail, lower provisioning should act as major tailwinds for the bank’s growth. Many analysts have a ‘buy recommendation with an upward revision in their target price. On October 22, Federal Bank released its second-quarter fiscal 2022 earnings. It reported a whopping 49.62% year-on-year rise in its net profit of Rs 460.26 crore in Q2FY2022 as against Rs 307.62 crore in Q2FY2021. Its net interest income jumped 7.2% whereas net total income grew 5.17% year-on-year in the quarter. Most notably, the bank’s CASA grew by 18% y-o-y and the CASA ratio was at an all-time high level of 36.16%. In September 2021 quarter, FIIs/FPIs, mutual funds, and DIIs marginally increased their holding in the bank. Retail investors should take serious note of this.

Periodic returns and key technical parameters  

Since its listing in July 2021, Federal Bank stock delivered 9,363.3% returns to shareholders. However, it was dull during the past five years with a mere 25.9% returns. Things changed from last year when the scrip gained momentum fetching 84.2% returns. The return momentum continued with a 51.6% yield on a year-to-date basis, 43.2% in six months, 26% in a month, 8.7% in the last five days, and 6.84% on October 22. Note that the scrip has closed up in consecutive five trading sessions.  
FedBank
Federal Bank stock appears lucrative based on key technical parameters such as RSI, Momentum, MACD, and 10-day/20-day/50-day/100-day/200-day EMA.

Investors, where are you?   

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100
  • Sanjay Soi @Sanjay Soi
    I beg to differ with your analysis of the Q2 results. The higher EPS and PAT has been obtained by lowering the the provisions on non tax items, the Operating profit is lower by 8.60% YOY, keep in mind that last year we were coming out of a severe countrywide lockdown. Federal bank managed to deliver results with lower operating profit but higher EPS. This points that the results are declared with an agenda and though data is in plain sight analyst are ignoring the fact and operators are driving the retail investors to bankruptcy.
    Like 9
    • Sanjay Soi @Sanjay Soi
      Thank you for your reply. I am surprised with all headlines by analyst reports. The Q2 results seem to be an effort to paint a 'unreal picture', maybe a backdoor for powerful investors to make an exit.
      Like 6
    • Sanjay Soi @Sanjay Soi
      Some parallel can be drawn from Yesbank results too
      Like 0
    • Sameer Padole/Investing.com @Sameer Padole/Investing.com
      @Sanjay Soi Definitely, we should have a cautious view of things and approach with being negative on stocks. The ace investor has added more FedBank shares in Q2FY22.
      Like 0
    • Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

      Error: File type not supported

      Drop an image here or

      100
  • Sanjay Soi @Sanjay Soi
    I beg to differ with your analysis of the Q2 results. The higher EPS and PAT has been obtained by lowering the the provisions on non tax items, the Operating profit is lower by 8.60% YOY, keep in mind that last year we were coming out of a severe countrywide lockdown. Federal bank managed to deliver results with lower operating profit but higher EPS. This points that the results are declared with an agenda and though data is in plain sight analyst are ignoring the fact and operators are driving the retail investors to bankruptcy.
    Like 2
  • Sanjay Soi @Sanjay Soi
    I beg to differ with your analysis of the Q2 results. The higher EPS and PAT has been obtained by lowering the the provisions on non tax items, the Operating profit is lower by 8.60% YOY, keep in mind that last year we were coming out of a severe countrywide lockdown. Federal bank managed to deliver results with lower operating profit but higher EPS. This points that the results are declared with an agenda and though data is in plain sight analyst are ignoring the fact and operators are driving the retail investors to bankruptcy.
    Like 2
  • Sameer Padole/Investing.com @Sameer Padole/Investing.com
    Dear readers, please read listing year as 2001 instead of 2021. It's a typo.
    Like 4
  • Sanjay kumar @Sanjay kumar
    thank you Sameer Sir for ur great work and helping new investors like me....God bless you
    Like 2

Related Articles