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IndusInd Bank, a prominent private sector lender in India, has recently come under intense scrutiny due to significant discrepancies in its derivatives accounting. This revelation has led to a sharp decline in its stock value and prompted several brokerage firms to reassess their positions on the bank. This article provides a comprehensive analysis of the brokerage responses following IndusInd Bank’s downgrade, incorporating the latest data and news.
Background of the Downgrade
On March 10, 2025, IndusInd Bank reported discrepancies in its derivatives accounting, leading to a potential reduction in its net worth by approximately ₹1,600 crore to ₹2,000 crore. This announcement triggered a massive sell-off, with the bank’s shares plummeting by 27% on March 11, marking the steepest single-day decline since March 2020. The stock hit a 52-week low of ₹674.55 during the trading session.
Brokerage Responses
The accounting discrepancies have raised concerns among various brokerage firms, leading to downgrades and target price reductions for IndusInd Bank’s stock. Below is a comparative analysis of these responses:
Emkay Global
Rating Change: Downgraded from ‘Buy’ to ‘Add’
Target Price: Reduced by 22% to ₹875
Rationale: Emkay Global cited the forex derivative loss and uncertainty surrounding the final external audit report due in Q4FY25 as reasons for the downgrade.
Nuvama
Rating Change: Downgraded from ‘Hold’ to ‘Reduce’
Target Price: Lowered to ₹750
Rationale: Nuvama expressed concerns over multiple adverse developments, including the Chief Financial Officer’s (CFO) departure, limited tenure extension for the Chief Executive Officer (CEO), and the forex derivative markdown, leading to expectations of sustained pressure on earnings.
Elara Capital
Rating Change: Downgraded to ‘Sell’
Target Price: Set at ₹830
Rationale: Elara Capital highlighted the potential reduction in the bank’s net worth by ₹1,600 crore to ₹2,000 crore due to the derivatives accounting discrepancies, raising concerns about governance and earnings visibility.
Market Impact
The downgrades and target price reductions have significantly impacted investor sentiment, leading to a substantial decline in IndusInd Bank’s stock price. The shares hit a 52-week low of ₹674.55, marking a 27% drop in a single trading session. This decline reflects the market’s reaction to the accounting discrepancies and the subsequent downgrades by brokerage firms.
Governance and Management Concerns
The recent developments have also raised concerns about the bank’s governance and management practices. The resignation of the CFO, coupled with the Reserve Bank of India’s (RBI) decision to grant only a one-year extension to CEO Sumant Kathpalia instead of the typical three-year term, has added to the uncertainty surrounding the bank’s leadership. Emkay Research indicated that the RBI was not satisfied with the progress in conditions set earlier, pointing to issues in the management of the microfinance portfolio that led to an increase in non-performing assets.
Investor Guidance
Given the current scenario, investors are advised to exercise caution regarding IndusInd Bank’s stock. The accounting discrepancies, coupled with management uncertainties and multiple downgrades by brokerage firms, suggest potential challenges ahead for the bank. Investors should closely monitor further developments and consider the revised target prices and ratings provided by brokerage firms before making investment decisions.
IndusInd Bank’s recent accounting discrepancies have led to significant downgrades and target price reductions by several brokerage firms. The market has reacted sharply, with the bank’s stock experiencing a substantial decline. The situation underscores the importance of robust governance and transparent financial practices in maintaining investor confidence. As the bank navigates these challenges, stakeholders will be keenly observing its corrective measures and future performance.
