Embarrassingly, IndusInd Bank is in our model portfolio; too late to sell: Emkay Global

The derivatives loss is a setback to management credibility, noted Emkay.

IndusInd Bank is, embarrassingly, in our model portfolio and a top pick for CY25. The derivatives loss, though a one-off, is a setback to management credibility, said domestic brokerage Emkay Global in its mid-week report. However, the brokerage is maintaining the shares of the lender in its portfolio, as it is 'too late to sell'.

The brokerage is referring to the meltdown seen in IndusInd Bank's stock price, as a result of discrepancies found in its derivatives portfolio.

During an internal review of processes relating to parts of its derivatives portfolio, IndusInd Bank has estimated an adverse impact of 2.35 percent on its networth as a result of some discrepancies in these account balances, a company filing said on March 10.

This could potentially impact its profit by around Rs 1,500 crore, according to a person familiar with the matter. The final hit may be higher as an external review is underway, Moneycontrol earlier reported.

According to Emkay, the transcations, which related to hedging in its forex portfolio, should
not have been treated as two-legged, when one is purely internal. "Applying different standards to each leg made it even worse and the bank was, effectively, overstating NII for an extended period. Despite the management’s protestations, we think the disclosure could have been made sooner," said the brokerage.

Also Read | Brokerages say IndusInd Bank 'lost credibility', downgrade shares on discrepancies in derivatives portfolio

The silver lining is that the business outlook is improving. The MFI stress should be over
by Q1FY26; the bank is well-positioned to exploit any recovery in the autos segment, which is 25.5 percent of loan book. Further, a low-floating rate exposure makes it a beneficiary of falling rates.

"Valuations have over-discounted the derivatives loss, but that is natural when credibility is an issue. The promoters and board now have an opportunity to address investor skepticism with a statement hire when choosing Sumant Kathpalia’s successor," added Emkay.

The brokerage is keeping the stock in the Emkay Model Portfolio as it is too late to sell. "Though we are cognizant that, barring a near-term dead-cat bounce, the stock will mark time until the new CEO is announced," added Emkay Global.

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