Bandhan Bank Shares Jump 6% Despite Q3 Profit Slump: What’s Driving the Rally
Bandhan Bank Q3 results shares surprised the market on Monday by climbing nearly 6% despite the lender reporting a sharp drop in its net profit for the third quarter. This unusual market reaction has caught the attention of investors, analysts, and market watchers, prompting questions about the bank’s underlying performance, prospects, and how much of the optimism is rooted in fundamentals vs. sentiment.
Bandhan Bank Q3 Results: Profit Declines but Core Trends Improve
Bandhan Bank declared its Q3 numbers, reporting a steep decline in the net profit at more than 50 per cent year-on-year on like basis with that of last year’s corresponding quarter. The numbers, while approximate, represented a staggering fall and one that investors challenged.
The main cause for the tumble was no one-time income or non-recurring earnings supporting factors in the previous year. In the previous quarter, Bandhan Bank had derived benefits from these gains, leading to one-time gains in net profit on a YoY basis. With those one-time gains not recurring in this quarter, the bank’s profitability seemed to have plunged.
Summary of Q3 highlights:
- Net profit was lower by 52% YoY.
- Profit headwinds included lower “other income” and the rolling off of one-time gains.
- The quarter-on-quarter sequential performance was stronger, a good sign that core operations are stabilising.
Typically, with weak profitability, the market reaction would be an immediate fall in the stock price. Yet this quarter broke that pattern.
Share Price Rally: Contrasting Profit Drop with Market Reaction
Despite the stark drop in net profit, Bandhan Bank’s share price jumped around 5–6% soon after the results were released. This divergence between earnings and stock performance has become a talking point, and there are several reasons why the market reacted positively:
1. Sequential Improvement in Core Metrics
While profit was down year-on-year, the bank reported improved performance on a sequential basis in several operating indicators:
- Loans and deposits, the core banking business where NII relevance runs, grew.
- NIM stable or better.
- PAT increased qoq momentum is in the positive direction, but with a weak base effect.
This suggests that while the annual comparisons were weak due to non-recurring stuff, the underlying business may be returning to healthier trends.
2. Reduced NPAs Indicate Improved Asset Quality
A second reason investors have been more confident in the market is that asset quality indicators, a critical yardstick of any bank’s financial condition, have begun to improve.
Gross and net non-performing assets (NPAs) of Bandhan Bank declined. The decline in NPAs implies a lower incidence of loans turning bad, which both lowers provisioning expenses and restores investor confidence that earnings will stabilise in future.
The bank is said to have taken tactical decisions, such as offloading NPAs to asset reconstruction companies and accelerated provisioning, which helped in clearing the balance sheet.
For investors, better asset quality is usually more valuable over time than moves in the quarterly profit that can be skewed by accounting items and one-time income.
3. Growth of Deposits and Loans
Apart from profitability and asset quality, the bank’s key banking parameters, deposits and advances also have demonstrated strong performance.
Deposits wereup on the same time a year earlier, indicating customer confidence and a solid funding base. Gross advances (loans) expanded, which suggests that the bank is growing its lending, a key piece of future interest income.
The healthy deposit and credit growth indicate that the bank’s underlying business is growing, even if its near-term profits are not.
4. Brokerages Turn Bullish, And Here’s Why
Among the triggers for Bandhan Bank’s stock price jump is upgrades from top brokerages, which have been growing more positive in their outlook on the stock.
Motilal Oswal: Buy with a Target of Upside
Motilal Oswal revised its rating on Bandhan Bank to buy with a much higher target price above the current market prices. The brokerage highlighted attractive valuations and improving trends in key metrics as drivers for the bullish stance.
JM Financial Add with Strong view
JM Financial also provided an optimistic forecast, rating the stock as “Add” and stating there remains headroom for upside as asset quality improves and profitability normalises.
Valuation Still Attractive
Analysts point out that, on a valuation basis, Bandhan Bank looks undervalued relative to its peers. Metrics such as price-to-book (P/B) remain moderately low, suggesting limited downside risk and good potential for upside if earnings normalise.
So What Does All This Mean for Investors?
The mixed signals, weak quarterly profit versus strong stock performance , may seem confusing at first. But when you step back from the headline numbers to consider what it is that the market is actually valuing, the rally makes sense:
- Forward Looking Sentiment
Investors frequently value stocks not just on past results but also on future prospects. And here is what the market seems to be betting on:
- Renewed earnings growth,
- Improved asset quality into the future
- Stronger core banking trends.
2. Cleaner Balance Sheet
With asset quality improving and stressed assets being managed actively, the bank is positioning itself for healthier profitability in the upcoming quarters.
3. Strategic Execution
The sequential improvement in many important operating statistics indicates that management is doing a good job, albeit with the help of one-time factors this quarter.
Risks and What to Watch Next
While sentiment in the near term is positive, investors still need to brace themselves for a few things:
Profit Recovery: The bank needs to demonstrate a trend of net profit on a sustainable growth path, preferably stemming from its core business rather than accounting adjustments.
Interest Rate Environment: Interest rate changes impact Banks NIMs. Sudden moves in monetary policy could affect Bandhan Bank’s future earnings.
Asset Quality Pressure: NPAs could return if growth slows or credit underwriting standards deteriorate.
Valuation Expectations: Although valuations still appear compelling, rallying sentiment ought to be supported by sustained execution for the stock to hold steady or enhance its relative multiples.
Final Takeaway: A Rally on Hope, But With Real Stuff
The performance of Bandhan Bank in the third quarter is a classic example of how markets can look past short-term earnings pain and focus on a potentially brighter future. The share price surge, supported by broker upgrades, improving asset quality and solid core metrics, suggests investors are choosing to look through short-term profit volatility in favour of longer-term growth potential.
For investors, this translates into finding a balance between short-term enthusiasm and fundamental realities. The rally reflects a variety of reasons, but long-term shareholder value needs to see sustained recovery in profitability.
Also Read: IndiGo’s Q3 Resilient Performance Under Pressure as Exceptional Costs, Weak Yields Weigh on Outlook
