IndusInd Bank: Foreign Investment Headroom Opens Up, But Will It Lead To Inflows...

Shareholding data for Hinduja-owned IndusInd Bank has been released for the quarter ended December 2024.

As per the stock exchanges, the foreign holding limit at the end of December quarter stood at 46.63%, compared to 59.62% at the end of second quarter. Though this opens up room for foreign investors to move in, there is an issue.

The private sector bank has seen its foreign holding decline for the last five quarters, i.e. since September 2023, when foreign investors accounted for 61.33% of the 74% foreign holding limit. Foreign holding stood at 63.49% at the end of March 2024 quarter. Since, then it has fallen by 16.86% in just fiscal 2025 alone.

Foreign portfolio investors held 24.74% of IndusInd's total shares at the end of December 2024 compared to 39.79% at the end of March 2024.

Foreign investors have gradually reduced their exposure to the private lender after asset quality issues emerged with respect to its microfinance subsidiary, Bharat Financial Inclusion Ltd., impacting the bank's balance sheet.

According to brokerage Nuvama, the decline in foreign investor headroom will lead to MSCI free float weight increasing in the stock in the February 2025 review by the index provider. This could lead to inflows of up to $200 million. The decline in the foreign utilised limit below 49% from 55.53% at the end of Sept. 2024 end is the reason for doubling of free float weights for the stock. This will lead to passive funds tracking the MSCI Index realigning to the revised weights of the stock post MSCI review. The deterioration in the fundamentals of the bank in t. e last few quarters has led to selling by the FPIs with the stock correcting 44% in the last 12 months.

But at a time when foreign investors have been reducing their exposure to the private bank, any incremental investment will only be likely when the bank is seen turning around its operations.

At the end of second quarter, the bank saw its cost of funds flat and shrinking yields impacted its margins. The microfinance loan book shrank 12% quarter-on-quarter and was down 5% over the previous year.

IndusInd Bank also built in contingency buffer of Rs 500 crore, of which Rs 250 crore was meant for the MFI business. The bank said the contingency buffer was from a prudence perspective.

Almost all consumer segments, viz. vehicle, cards and microfinance, saw a sequential deterioration in the asset quality with the consumer segment slippage rising 13% sequentially in second quarter with majority of slippages from MFI business.

The management is "cautiously optimistic” on MFI segment and expected the recovery in MFI in the December quarter.

The bank gave a growth guidance of 18–23% for the fiscal ending March 2025, which it will likely miss.

The IndusInd Bank stock was trading 2.73% higher at Rs 962.70 apiece as of 9:59 a.m., after touching an intraday high of Rs 973.50 per share. Meanwhile, the benchmark Nifty 50 was down 0.88% to 23,227.