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Synopsis: Emkay Global has removed IndusInd Bank from its model portfolio due to leadership concerns and a Rs2,100 crore derivatives accounting discrepancy. The brokerage believes that it is better to enter banking stocks at a higher valuation when risks are more contained rather than investing amid uncertainty. Instead, it has introduced Power Finance Corporation as a replacement, citing its attractive valuation and potential in the power sector.
Emkay Global has decided to remove IndusInd Bank from its model portfolio, citing significant concerns over leadership stability and a Rs2,100 crore discrepancy in derivatives accounting. The brokerage firm stated that, when it comes to banking stocks, it is often wiser to invest at a higher valuation when risks are well understood and managed, rather than pursuing undervalued stocks with unresolved issues. The ongoing accounting concerns at IndusInd Bank, combined with regulatory scrutiny and uncertainty regarding corrective measures, have raised red flags for investors.
The Rs2,100 crore discrepancy in the bank’s derivatives portfolio has already triggered a forensic audit, with PwC and Grant Thornton reviewing the matter. PwC is expected to submit a detailed report by March 28, outlining the actual financial impact, identifying operational lapses, and recommending remedial steps. Meanwhile, the Reserve Bank of India (RBI) has directed the bank’s board and management to implement necessary corrective actions by March 31. These developments have led to heightened concerns among investors and analysts about the bank’s financial health and governance.
Amid these challenges, IndusInd Bank has been working to strengthen its financial position. The bank recently raised Rs11,000 crore through certificates of deposit (CDs) to address funding concerns, especially as reports indicate deposit withdrawals. Meanwhile, its promoter entity, IndusInd Holdings Ltd (IHL), which holds a 15% stake in the bank, is awaiting final regulatory approval to increase its stake to 26%. However, the approval process remains pending, adding to the uncertainty.
In response to these concerns, Emkay Global has replaced IndusInd Bank in its portfolio with Power Finance Corporation. The brokerage believes Power Finance is an attractive alternative, given its strong fundamentals and a valuation of just 1x its price-to-book value. Additionally, this move aligns with Emkay’s bullish outlook on the power sector.
Following these developments, IndusInd Bank’s stock witnessed a slight decline, trading 0.31% lower at Rs654 on the BSE. The market remains cautious as investors await further clarity on the bank’s financial position and regulatory interventions.
Emkay Global’s decision underscores the importance of stability and transparency in the banking sector. While IndusInd Bank’s valuation may appear attractive, the lingering uncertainty surrounding its accounting practices and leadership structure makes it a risky investment. Investors should closely monitor upcoming reports and regulatory actions before making investment decisions.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult a financial expert before making any investment decisions.
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