No Space For IndusInd Bank Anymore In Emkay's Model Portfolio
Instead, Power Finance Corp. was chosen by agency as the replacement for the Nifty heavyweight.
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IndusInd Bank Ltd. no longer has a place in Emkay Global Financial Services Ltd.'s model portfolio amid uncertainty over leadership and a fallout of the bank's derivatives-accounting issue.
"Current valuations probably overdiscount the negatives but we do not see an imminent recovery," Emkay analysts wrote in a note on Thursday. "With banks, we believe it is better to enter at a higher valuation when risks are more compressed, and sacrifice some upside than go bottom fishing."
Instead, Power Finance Corp. was chosen by the agency as the replacement for the Nifty heavyweight. It said PFC "is attractive at ~1x P/BV and gives us additional exposure to our bullish view on the power sector".
The development follows the private lender's March 10 disclosure on discrepancies in its derivatives accounting, estimated to affect its net worth by 2.35%. That sent the bank's shares sliding by 25% since then.
NDTV Profit had earlier reported that the lender had discovered a gap in its derivatives portfolio as early as October 2024. Immediately after the bank noted the discrepancies, it initiated an internal review of the matter and appointed PwC to externally validate the review.
It then followed this up by appointing an independent professional firm to investigate the discrepancies. To add some perspective, in its third-quarter disclosures, IndusInd Bank said that the notional value of derivatives, foreign exchange contracts and options worked out to over Rs 15 lakh crore. This was against risk weighted assets worth Rs 17,022 crore, as of Dec. 31.
D-Street's perception on IndusInd Bank is likely worsening because there's also the issue of leadership stress at the bank. The RBI gave a one-year extension to Sumant Kathpalia as the MD and CEO of the bank, as opposed to the board's request for a three-year extension. A person with direct knowledge of the matter had earlier told NDTV Profit that the regulator was not convinced with Kathpalia's leadership at the bank.
Now the bank's board has to decide if it intends to look at internal or external candidates to succeed Kathpalia when he leaves the bank in March 2026.
