Irrespective of the poor performance in the second quarter, Axis Bank shares surged by 4 percent, and investors tend to ignore the numbers and focus on the underlying positives. This contradictory move leaves many investors wondering whether to buy, sell, or hold.
What triggered the stock surge?
One-time provision impact: The nearly 26% drop in net profit to rupees 5,090 crore was primarily due to a rupees 1,231 crore provision on discontinued crop loan variants, as directed by the RBI. Investors seem to have discounted this as a non-recurring event.
Asset quality: The Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios have seen a reduction, leading to a better grip over bad loans.
Loan growth: A year-on-year (YoY) growth of 12 percent has been reported in the bank’s loan book, steered by a strong performance in the corporate management.
Management’s positivity: The management commented that Net Interest Margins (NIMs) are expected to bottom out in the coming quarter, which poured confidence in future profitability.
Q2 financials
Net profit of Q2 FY26 is down by 26 percent YoY to rupees 5,090 crore, indicating a weak result but impacted by one-time provision.
Net Interest Income (NNI) is up by 2 percent YoY to rupees 13,744 crore, indicating a marginal growth.
Net Interest Margin (NIM) is standing at 3.73 percent, which indicates a point of concern.
Gross NPA at 1.46 percent, showing sequential improvement.
Net NPA at 0.44 percent, which again shows a sequential improvement
Buy or sell the stock?
Bullish case: The negative news of the one-time provision has already been bypassed by the market. Improving asset quality and consistent loan growth are strong signals of a healthy underlying business. If the management’s forecast on Net Interest Margins (NIMS) turns out to be positive, profitability could witness a significant uptrend in the coming quarters.
Bearish case: The contraction in NIMs is a doubt, and its recovery is not guaranteed. Subdued growth in the retail loan segment can drag the overall performance.
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