Vault Matters | The curious case of IndusInd Bank share price

IndusInd Bank’s stock price movement certainly invokes a lot of curiosity.

Is stock price movement of a barometer of anything? Does it really reflect the true picture of a company? In eight out of ten cases, it may be a mirror to a company’s real state of affairs. But instances like IndusInd Bank’s stock price movement defies this logic.

Sample this, at its peak in June 2018, Yes Bank stock was trading at approximately Rs 380 apiece. By January next year, when first signs of trouble became evident, the stock price declined to Rs 245 a share and it was a one-way movement from there on. By August that year, the stock price fell to about Rs 50 a share and by March 2020 it became a Rs 20 per share stock. Ironically enough, despite a so called turnaround at the bank and interest coming from Japanese investors to take controlling stake in it, the stock price still trades at near about its March 2020 or the distressed period levels.

Take the case of RBL Bank, a stock which in its best days was trading at over Rs 600 apiece. Cracks in its financials first appeared in its September quarter results for FY20. The price plunged 11 percent when the bank announced signs of stress in its book, yet the stock was trading a bit above Rs 300 level. Since then, there have been management changes and structural business-related changes, and yet the stock is still below its October 2019 levels.

The other important aspect to note is that in both cases, they were not instances of fraud; they were largely asset quality issues which took a different turn.

On the other hand, IndusInd Bank is an entirely different case.

On March 11, reacting to developments around derivatives accounting related issues, the stock plunged by over 20 percent. From Rs 900 a share, it plunged to Rs 655. But that was the first and last time, the stock witnessed such an adverse movement. Now trading at over Rs 810 levels a share, the losses are being neatly recouped. To put it in stock market language, all the bad news is getting discounted and bought by investors. While one could term it as a legitimate practice of ‘buying the lows’, there are four reasons why it’s tough to accept this logic, making a case for the capital market regulator to probe into the price movement.

For one, it’s the domestic retail and institutional investors buying the stock, while the foreign investors continue dumping it. Secondly, whether the worst is over is quite anybody’s guess, considering that the mess at the bank is no contained to just derivatives related issues, but involves businesses such as microfinance etc.

Thirdly, this is the first instance where the statutory auditor has referred to the developments at the bank as fraud and the language used by SEBI in its recent interim order on a few employees for insider trading has used a similar language, if not harsh. Therefore, its too early to call out the possible outcome of such fraud tagging. Lastly, what also needs attention is the fact that about half of promoters stake (Hinduja’s IndusInd outfits holding shares of the bank) is pledged. The pledge was created many quarters ago and there is no direction from the promoters as when the pledge would be freed.

According to a Macquarie Capital report in March, if IndusInd Bank stock price falls to Rs 600 a share or lower, lenders can invoke pledge on the shares. Could this factor have played a role in keeping IndusInd Bank’s stock price stable?

With no concrete answers to all these questions, IndusInd Bank’s stock price movement certainly invokes a lot of curiosity. Especially when all is not well and no one can call out the bottom just yet.