IndusInd Bank stock: 'Markets have seen this before...', Financial Advisor shares note amid current uncertainty

IndusInd Bank shares have seen a sharp dip, losing 30% of their market value in recent times. The slump follows the Managing Director's one-year extension, shorter than the usual three-year term, along with the disclosure of a Rs 1,577 crore net worth hit due to an accounting gap. As a result, investor sentiment on Dalal Street has turned negative, with most traders steering clear of the stock.

On Tuesday, IndusInd Bank's share price plunged by 27.17% on the BSE, marking its largest single-day drop since the company was listed. Closing at Rs 655.95 per share, the stock reached its lowest point since November 2020.

However, some brokerages and experts feel IndusInd Bank will recover and bounce back in style. 

In a recent social media post, Mayur Sejpal, an entrepreneur, wealth management expert, and financial advisor, observed that the markets have experienced similar downturns in the past with ICICI, Axis, and JPMorgan, but they all successfully recovered and emerged stronger. With IndusInd's robust foundation boasting a 15%+ CAR, sound governance, and a renewed focus on execution, the future looks promising for the company.

Sejpal posted: "IndusInd Bank’s comeback is in motion! After all the noise, the stock is stabilizing at Rs. 683.15, barely moving 0.23% from the previous close, but what matters is the strong 14% rebound from its intraday low a clear sign that smart money is stepping in. CEO Sumant Kathpalia has made it clear no liquidity issues, no solvency concerns. The bank took the Rs. 1,520 Cr hit upfront, self-reported, and is now tightening risk frameworks. This is how strong institutions handle challenges. Markets have seen this before ICICI, Axis, and JPMorgan all took hits and bounced back stronger. IndusInd’s foundation is solid 15%+ CAR, strong governance, and now, the focus is on execution. Those who understand cycles know how this plays out."

What CLSA said

Despite the recent volatility in IndusInd Bank shares, global brokerage CLSA has decided to maintain its outperform rating on the stock. While many other brokerages have downgraded IndusInd Bank and lowered target prices due to concerns about undisclosed issues and a lack of trust, a crucial component of the banking sector, CLSA remains cautiously optimistic.

IndusInd Bank is not alone in facing such challenges in the Indian lending industry. Referring to past incidents involving RBL Bank and Yes Bank, CLSA pointed out that market sentiment tends to impact short-term movements, but stock prices eventually reflect the underlying fundamentals.

A similar scenario unfolded with Yes Bank when the RBI suddenly terminated the tenure of its Managing Director in September 2018, directing them to step down by January 2019. During this period, the stock experienced a significant decline of over 50%. However, in February 2019, the bank released a 'nil NPL divergence' report, reassuring investors that its gross non-performing loans (GNPLs) matched the RBI's evaluation.

"The market was relieved that the loan book had no hidden risks, and the stock surged 30% in a single day. It further rallied 20-30% over the following month. However, the gains were short-lived as the new MD later revealed a significant proportion of bad assets," CLSA analyst Piran Engineer said in the note.

IndusInd rebound

Despite the prevalent negative sentiment, CLSA has identified key factors that have the potential to support a rebound in the stock of IndusInd Bank. Factors such as a recovery in the microfinance sector, improved liquidity in the banking system, potentially boosted by rate cuts, could act as immediate positive drivers.

Moreover, a non-fundamental catalyst could be the approval from the Reserve Bank of India for the bank's promoters to increase their stake, especially following their acquisition of Reliance Capital. The acquisition of a greater stake by the promoters might help restore confidence among investors and result in an upward movement in the stock price.

Currently, market sentiment holds significant sway, but history suggests that fundamentals may eventually take precedence in the medium term.