IDFC First Bank shares rally 3% as Q2 profit surges 75%. Should you buy, sell or hold?

Core Insights - IDFC First Bank reported a significant 75.5% year-on-year increase in standalone net profit, reaching Rs 352.31 crore for Q2 FY26, driven by strong business growth and improving operating leverage [7] - The bank's net interest income (NII) rose 6.8% year-on-year to Rs 5,112.57 crore, although the net interest margin (NIM) declined by 59 basis points to 5.59% [7][8] - Asset quality remained stable, with the gross NPA ratio at 1.86% and net NPA at 0.52% as of September 30, 2025 [6][8] Financial Performance - The bank's total customer business expanded by 21.6% year-on-year to Rs 5,35,673 crore as of September 30, 2025 [2][7] - Loans and advances grew by 19.7% year-on-year to Rs 2,66,579 crore, while customer deposits increased by 23.4% to Rs 2,69,094 crore [2][7] - CASA deposits rose by 26.8% year-on-year to Rs 1,38,583 crore, with the CASA ratio improving by 119 basis points to 50.07% [7] Operational Efficiency - Operating leverage is improving, with total business growth of 22.7% year-on-year in FY25 and 21.6% year-on-year in H1 FY26, compared to operating expense growth of 16.5% and 11.8% respectively [4][8] - The cost of funds decreased by 23 basis points year-on-year to 6.23%, providing a buffer against margin pressure [7] Market Outlook - Brokerage Motilal Oswal Financial Services (MOSL) noted robust business growth, with net advances rising 20% year-on-year and deposits up 24% year-on-year [6][8] - MOSL projects a 20% CAGR in loans and a 63% CAGR in PAT over FY25–28, with FY27E ROA/ROE at 1.0% and 9.3% respectively [6][8]