A little correction in any valuable stock is always considered healthy and welcomed by the market for two reasons. Firstly, it gives them a chance to increase their holdings, and secondly, it also reflects that the stock’s rally is based on solid fundamentals and not just driven by SMS and forums. However, the free fall that started in IndusInd bank definitely points out some trouble in the background. Even before the Corona Pandemic had hit the markets, IndusInd has nearly corrected by 40% from the lifetime high of 1800 to 1100 rupees.
Came the Corona and the market was dumping the stock like rotten eggs. The fall was partially driven by ghost of the past. Afterall people have lost a fortune in Yes Bank, Jet Airways, and DHFL in 2019. So in light of the past events and the Q4 results posted by the bank, Shyam Advisory has brought to an analysis of IndusInd bank, that once found fortune amongst the investors. Along with that, this article further gives you an analysis of the market and how investors should practice caution while using intraday tips and commodity tips to insulate themselves in the present market.
What Caused the Correction
The trouble began when the company was regularly hit by news of degrading Asset Quality. The recently released Q4 report of FY 2019-20 clearly shows an increased slippage in the Non Performing Assets.
Further, there are three more worrisome factors apart from the slippage itself. The Risk Weighted Assets or RWA ratio increased to 84%, which is not a piece of positive news for the company. Secondly, the financial report of the company reveals a disconnect between slippage and the special mention accounts. And lastly, the company has shown a weakening deposit trend in the past few months. The last factor might be an outcome of the crisis at Yes Bank where public faith is largely eroding in the troubled private lenders.
For those of you who are unaware of the term Special Mention Accounts, these are a special category of loans where the interest payment has been due for more than 30 days but less than 60 days. Special Mention Accounts were brought in practice in order to recognize the possible NPAs as early as possible.
Is it Another Yes Bank in Making
In short, No. The IndusInd bank has been much more honest than its peer and all the regulatory steps, taken by the management, has made one thing very clear. The road might be dark for the company but it has got the force to take it beyond the dark times. The company was quick enough to bring about a management change. As Sumant Kathipala took over the charge of the affairs, the cost of funds declined and margins improved by nearly 10 basis points.
The Road Ahead
In the Q4 itself, guided by the RBIs guidelines, the company created 23 crore provisions and in the wake of Covid 19, another 260 crore provisions are in making. The present provisions stand at 63 percent and the management intends to take it to 70%. Further, in the April month, deposits returned to the bank and its liabilities increased owing to the inflow of cash from the government as well as retail depositors.
The bank has sufficient capital to keep its business running and the intentions of the promoters have been quite clear, unlike Yes Bank. After a massive correction of nearly 70% to a lifetime low of 255 rupees, the investors seem to have reposed faith in the bank. After its Q4 results were declared the stock hit a 13% rally on Tuesday. Around a CMP of 450 INR, the stock looks quite promising and investors can start accumulating it in the SIP mode. For other bank nifty tips and stock options tips, our readers are advised to follow them thoroughly and put in a stop loss.
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