As clouds of doubt clear, investors queue up for ‘interesting’ IndusInd

IndusInd Bank surged 45 per cent as investors lapped up the stock that has become attractive after falling below its book value now that the clouds over promoters’ pledged shares and the bank’s financial position have receded.

Short covering on the last day of the futures and options expiry also helped the rally.

IndusInd which had fallen to as low as Rs 235, soared 45 per cent to close at Rs 437 per share. It is still way off its 52-week high of Rs 1,835 per share which it touched on March 20 2019.

“The issues with the bank are not that big to warrant the fall we have seen,” said Asutosh Mishra, head of research at Ashika Stock Broking. “The main reason was the pledged shares by promoters which received market attention recently though it was done a while back. Other than that there is no real issue with the bank's fundamentals as such.”

The Hinduja-promoted IndusInd was caught in a stock market storm over the past few months with speculation about its exposure to real estate groups, telecom companies and its business practices over accounting for fees.

To add fuel to the fire, the promoters’ pledge of shares to fund other ventures led short sales by hedge funds, triggered by covenants that were about to be breached.

But the Hindujas last week said they had released those 23.8 million shares from a non-disposal undertaking given to the lenders.

“No new borrowing was undertaken and was merely a formalisation of a three-year old arrangement. The money was originally raised to make an overseas acquisition which did not fructify — the pledge is a small fraction of the promoter holding in the bank,” the statement from the promoters said.

To further build confidence in the bank and to show their commitment to the bank, Hindujas wrote to the Reserve Bank of India seeking permission to raise their stake 26 per cent in the bank from 15 per cent.

The RBI’s imposition of a moratorium on Yes Bank had also led to speculation about the quality of assets in IndusInd Bank and there were speculations about its exposure to real estate, telecommunications and tottering business houses.

But IndusInd said that rumours were baseless and that there has not been much change in its asset quality. The bank said it expects its net NPAs to fall below 1 per cent in the quarter ended March 2020 from 1.05 per cent at the end of December.

“The fact-based disclosures are for everyone to see,” former CEO and now an advisor, Romesh Sobti told ET last week. “Between the end of the third quarter and now nothing has changed. We have said zero NPAs in real estate; in gems and jewellery and commercial micro finance portfolios remain in a range. So, nothing has changed as far we are concerned but the speculative activity has grown many times.”

“A sharp correction in the Bank Nifty that fell nearly 50 per cent from the top has removed excesses in valuations of large banks as well as large NBFCs, though a bottom may or may not be formed yet. HDFC Bank, down 35 per cent, IndusInd Bank down 78 per cent are trading at 2.6x, 0.7x adjusted book value from peak of 3.4times and 2.9 times , respectively,” said ICICI Securities.