Mid- and Small-Cap Private Banks Surge Up to 6% Despite Flat Market

On Tuesday, July 1, 2025, shares of several mid- and small-cap private sector banks experienced notable gains, with some stocks rising up to 6% during intraday trading. This surge occurred despite a largely flat broader market, highlighting investor optimism towards select banking stocks.

Key Performers in the Banking Sector

The surge was headed by IDFC First Bank, whose stock increased 6% to ₹77.10. With almost 101.5 million shares moving hands on the NSE and BSE combined, this increase was matched by a notable increase in trading volumes. The stock got close to reaching its 52-week peak on July 1, 2024, of ₹82.18. A strong profits forecast was cited by broking company Investec, which upgraded its recommendation on IDFC First Bank to "buy" and increased its price target to ₹90 per share, adding to the bullish trend.

Other banks also saw substantial gains:

• City Union Bank (CUB) share price rose 4% to ₹230.51, reaching a new 52-week high and closing at ₹230.51 today.
• AU Small Finance Bank share price increased by 3% to ₹837.60, closing at ₹837.60 today.
• Karur Vysya Bank and Federal Bank each gained 3% and 2%, respectively, with Karur Vysya Bank closing at ₹275.00.
• South Indian Bank advanced 2% to ₹31.62

These movements occurred while the BSE Sensex remained relatively unchanged, up by only 0.06% at 83,654 points.

Analyst Perspectives and Market Outlook

Except for the microfinance institution (MFI) and unsecured retail loan categories, analysts have observed a steady to favourable asset quality outlook for private banks. Stress in the unsecured portion, however, seems to have peaked. Together with improved cost indicators and a predicted decrease in credit charges, IDFC First Bank's total profitability profile should improve as its activities grow in size. However, given the possible hazards of borrower overleveraging and economic upheavals, the MFI category is still worth keeping an eye on.

Conclusion

Growing investor confidence is seen in the recent surge in mid- and small-cap private sector banks, which has been fuelled by optimistic analyst evaluations and anticipations of better financial performance. These banks are in a strong position to take advantage of growth prospects in the changing financial landscape as long as they keep improving their operations and managing any risks.