COMMENT: Is it good news that Axis stock doesn't react to bad news?


Shishir Asthana
Moneycontrol Research

Axis Bank is getting unwelcome attention in the wake of demonetisation with nearly two dozen accounts being probed for irregularities. Though the rumours of the bank losing its licence have been quashed by the RBI and the bank officials, the government has reportedly asked Axis Bank to ‘set its house in order’.

Axis, on its part, has suspended accounts of several bullion traders and has asked KPMG to conduct a forensic audit to strengthen its safety measures and enhance diligence. Shikha Sharma, managing director and chief executive officer of the bank, has said that she is ‘embarrassed’ by the actions of a few employees after the bank suspended services of 16 of them following arrests of two bank managers by the enforcement directorate.

Sharma said, however, that the fundamentals of the bank are on a solid footing. Analysts, too, have not felt the need to change their guidance on the company after its recent problems. Since demonetisation was announced on November 8, Axis Bank has lost only 4.3 percent in value, outperforming the BSE Bankex index, which has lost 6.12 percent.

Negative news flow regarding the irregularities in accounts has had little impact on the stock’s performance.

The general perception is that demonetisation is positive for banks, especially those banks that are on the forefront of adopting digital technology to enhance their customer offerings. Axis Bank, the third-largest private sector bank, in terms of deposits, is considered to be a beneficiary of demonetisation.

Citi Research feels that demonetisation would lead to higher current account and savings account (CASA) deposits which should be earnings accretive, but slowdown would result in potential risks for SME (small and medium enterprises) which contributes 13 percent to the loan book and LAP (loan against property) with contribution of 9 percent of retail lending. However, the report adds that Axis Bank, given its urban dominance and business mix is better positioned among Indian banks. 

Analysts are more concerned over the asset quality of the bank after it reported higher slippages and weaker guidance on watch-list default rates and credit cost. September-quarter result blues resulted in Axis Bank losing 26 percent since the first week of September. However, after the sharp fall, analysts have warmed up to the bank.

Citi Research has made Axis Bank its top pick in the India banks sector, replacing ICICI Bank. Deutsche Bank in its report on the company says that demonetisation will lead to huge pick-up in deposit market share, and should benefit Axis Bank as it gains faster market share from formal and informal sectors.

Analysts and markets have shrugged away the problem faced by some branches of Axis Bank, and rightly so. With an estimated Rs 4.56 lakh crores in deposits by March-end, a few hundred crore of bad deposits are unlikely to cause any dent in the working of the bank.

Traders consider that if markets do not react to bad news, then it is a good time to buy. Is it a right time to buy Axis Bank shares then? We seek your views.

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