The Curious Case Of A Small Bank's Big Rally

AU Small Finance Bank's stock has rallied over 30% this year and is Bank Nifty's top gainer. What's going on?

- Abhishek Mukherjee

May 2016. Stamford Bridge football stadium, London. As the final whistle blew on a fiery draw between Chelsea and Tottenham Hotspur, a raucous cheer erupted from an unlikely corner of the crowd. It wasn't the match result they were celebrating, but one of the most astonishing moments in modern sporting history—lowly Leicester City, which had narrowly staved off relegation in the previous season, was crowned Premier League champions for the first time in their 132-year history.

Leicester City had earned a promotion to the top tier in English football just two years earlier. At the beginning of the 2015-16 season, bookmakers had given the team odds of 5,000-1 for winning the title. For context, the odds of Elvis Presley being found alive was 2000-1. In other words, Leicester's chances of being crowned the champions of English football were lower than Elvis being found alive.

And yet, the unthinkable had happened. The unheralded team with a modest wage bill had trumped the Premier League powerhouses like Manchester City, Manchester United, Arsenal and Chelsea.

Rank outsiders emerging on top always leaves behind a trail of heartbreak, euphoria and bewilderment. Not to mention a scramble for explanations.

Something similar is underway on Dalal Street, where the unlikeliest of candidates has emerged as Nifty Bank Index's top performer this year—AU Small Finance Bank. It not only has the smallest weightage in the grouping but also the only one without a universal banking licence. As yet.

But as the lender's June quarter (Q1) show suggests, while scale is not a prerequisite for strong execution, the market may well be rewarding promise more than performance at this juncture.

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