Global broking firm CLSA expects IndusInd Bank’s fundamentals to take over once the current concerns subside.
The recovery in microfinance and respite for margins from better banking system liquidity, and rate cuts will support the bank, it said.
“A non-fundamental positive could be the promoter getting RBI’s approval to increase its stake in the bank (after its acquisition of Reliance Capital is completed). Any stake purchase by the promoter will definitely boost investor confidence,” CLSA said in its note.
- Also read: Derivatives accounting hit: IndusInd Bank’s stock loses about a quarter of its value in a single day
“If IIB delivers numbers broadly in line with expectations over the next 4-6 quarters, we believe concerns will subside,” the brokerage said in its note.
In its investment thesis, the brokerage said that IndusInd is a good cyclical play on the ongoing upcycle in auto loans in India.
“In addition, with a higher share of fixed rate loans, it is better placed than peers in a rate cut cycle. Given its smaller size, it should grow faster than private sector peers,” CLSA said.
The management has said the discrepancy in its derivative portfolio is a one-time event.
Sumant Kathpalia, Managing Director and CEO, said that the bank will earn a profit in the fourth quarter and the financial year, despite the impact of the derivatives discrepancy.
He also expressed confidence in the bank’s capital adequacy which is above 15 per cent.
The bank also said that to ensure transparency, it has hired an external agency to independently review and validate the findings.
“A final report is awaited, and based on that, the bank will assess any impact on its financial statements,” the bank had said in an exchange filing.
He also assured that the bank would absorb the losses in this quarter and remain profitable for the full year.
“Q4 will still see profits, and from Q1 onwards, profitability will be strong,” he said.
Promoter Ashok Hinduja too reassured investors that the lender’s financial health was solid and that it would have full support if any capital needs arose.
