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IndusInd Bank saw a dramatic fall in its stock price on Tuesday, marking its largest-ever single-day decline; What should investors do?
IndusInd Bank is grappling with a potential Rs 1,600-2,000 crore hit to its net worth.
IndusInd Bank Shares: IndusInd Bank saw a dramatic fall in its stock price on Tuesday, marking its largest-ever single-day decline of more than 27%. The drop followed the bank’s disclosure on Monday that an accounting error could reduce its net worth by approximately Rs 2,100 crore. The issue, which spans multiple years, is linked to transactions in the bank’s derivatives segment.
This unprecedented revelation triggered a series of analyst downgrades, as concerns about the bank’s credibility mounted. These worries were compounded by existing challenges in its microfinance portfolio and the Reserve Bank of India‘s decision to limit the renewal of the CEO’s tenure to one year instead of the three years originally sought by the board. Shares of IndusInd Bank plummeted 27% to close at Rs 655, wiping out Rs 19,000 crore from its market capitalization, which fell to Rs 51,102 crore.
On Monday, the bank stated that its net worth could take a 2.35% hit, or roughly Rs 1,600 crore as of December 31, due to the underestimation of foreign exchange hedging costs. Analysts noted that the discrepancies were related to internal foreign exchange derivatives linked to the bank’s forex borrowings and deposits.
“While the monetary impact is relatively small in proportion to the bank’s overall balance sheet, the bigger concern is the credibility risk,” said Shrikant Chouhan, Head of Equity Research at Kotak Securities. “Investor trust is crucial for a financial institution, and it may take several quarters to rebuild confidence,” he added. Brokerages such as Jefferies, Nuvama, Emkay Global, and PL Capital downgraded their ratings on the bank following the news.
IndusInd Bank’s Response
The bank has enlisted an external agency to review and verify the internal findings independently. “A final report from the external agency is awaited, and based on that, the bank will consider any impact on its financial statements,” IndusInd Bank stated.
CEO Sumant Kathpalia assured that the bank expects to feel the impact only in the quarter ending March 2025. After that, the situation should return to normal, Reuters quoted him as saying.
Promoter Support
Ashok Hinduja, the promoter of IndusInd Bank, addressed liquidity concerns, offering reassurance that he was prepared to inject capital if necessary. “Shareholders shouldn’t panic. These are normal routine problems,” he said in media interactions.
CEO’s Assurance on Profitability
CEO Sumant Kathpalia stated during an analyst call that IndusInd Bank expects to report a profit in both the January-March quarter and for the full financial year 2025. He emphasized that the bank’s profitability and capital adequacy are strong enough to absorb the one-time impact. “The issue was identified by the bank… The bank has enough reserves and capital to manage this,” Kathpalia added.
What Should Investors Do Now?
Analysts noted that the sharp decline in IndusInd Bank’s stock price over the past year reflects diminished investor confidence. The stock has fallen more than 58% in the last 12 months, compared to a 1.1% gain in the Bank Nifty. Apurva Sheth, Head of Research at Samco Securities, pointed out that the stock is currently trading at levels comparable to public sector banks due to ongoing challenges faced by the lender.
In the third quarter, the bank saw an increase in slippages within its microfinance sector, according to Chouhan. While the financial impact of the derivatives issue is relatively limited, the erosion of investor trust could continue to weigh on the stock in the near term. Chouhan suggested that recovery will depend on the management’s ability to address governance concerns, improve asset quality, and maintain deposit growth.
Sheth recommended caution, advising investors to stay away from the stock until the management provides more clarity. “While there may be a short-term rebound in the share price, it’s important to remain cautious,” he said.
Viral Chheda, Senior Analyst at SSJ Finance and Securities, noted that after trading in the range of Rs 926-Rs 1,100 for the past four months, the stock has experienced a steep correction, reaching a four-year low of Rs 667. The stock has fallen nearly 30% this week alone, and Chheda believes there could be further downside to Rs 600-Rs 550 levels in the coming days.
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