Axis Bank climbs; CEO exit to lift cloud

Axis Bank shares surged more than 5% on Tuesday as investor sentiment in the stock was buoyed by Chief Executive Officer Shikha Sharma’s surprise decision to step down on December 31, partly lifting a cloud of uncertainty over the private sector lender’s management.

Volumes surge

The stock was the biggest gainer on the BSE’s benchmark 30-company Sensex, climbing 5.43% to close at ₹546. Trading volume jumped fourfold to almost 12 lakh shares, versus the two-week average of 3.1 lakh shares.

Axis Bank’s board had on Monday announced that Ms. Sharma would be demitting office at the end of 2018 — a good 29 months earlier than the scheduled end of her tenure in May 2021.

Market participants opined that it was a positive development for the bank as it reduces the regulatory overhang and also helps in allaying investor concerns about the state of corporate governance and managerial oversight in the banking industry, with Axis Bank and ICICI Bank in the limelight.

In a note to clients released on Tuesday, Kotak Institutional Equities upgraded the stock to ‘add’ while retaining its target price at ₹600.

‘Retail background key’

“While there could be short-term pressure on asset quality and provisions we believe that the risk should be lower as there would be acceleration in recognition of the balance of bad loans as per the new RBI directive in the next few quarters,” Kotak Institutional said in its note.

Observing that a successor to Ms. Sharma with established credentials in retail would be a positive for Axis Bank, the brokerage said that the focus would need to remain on the lender increasing its share of retail loans, maintaining a strong liability franchise, cutting down risky exposures and improving contribution from fees.

While Axis Bank was silent on Ms. Sharma’s replacement, the new CEO’s most pressing task would be to tackle the lender’s high level of soured assets and weakened financials.

“We hope the new person is an outsider, allowing fresh thoughts and strategy and to reestablish old links and rebuild credibility with investors,” Jefferies analysts led by Nilanjan Karfa wrote in a note.

Shares of ICICI Bank advanced 3.01% to close at ₹288.90. The gains in the two private sector lenders lifted the BSE Bankex, which rose almost 1%.

(With Reuters inputs)