A 27% fall in IndusInd Bank’s share price has left investors in a state of uncertainty. Mutual fund managers, who hold over Rs 6,500 Crore in the stock, are feeling betrayed. Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) are considering dumping the stock due to compliance failures. Retail investors holding IndusInd shares are feeling hopeless, while new investors are drawn to its distressed valuation. Let’s explore the key questions arising from this price crash.
Is it a One-Off?: A 27% drop may not be as alarming given the overall bearish market sentiment. Investors might dismiss this as a one-off event, provided there are no further skeletons in IndusInd’s closet. A balance sheet anomaly could be blamed on auditors, but a data oversight in a professionally managed bank is concerning. The Rs 1,600 Crore hedging cost, which wiped out over Rs 15,000 Crore in market cap in a single day, has certainly tarnished the bank’s credibility. Some speculate that the bank’s management was forced to disclose the information after failing to manage its independent auditors. With regulators tightening their grip on “friendly” audit firms, the auditors may have pressured IndusInd’s management to either disclose the issue or reflect it in the balance sheet. Disclosing the issue may have saved IndusInd from regulatory action.
The Bank’s Resilience and Shareholders’ Response: Insiders believe IndusInd is a professionally managed bank with a healthy capital reserve ratio (CRR). The Hinduja family, the bank’s shareholders, stepped forward publicly after the stock’s dramatic fall, offering reassurance. They even expressed willingness to inject more capital into the bank. While this affirmation is a positive sign, is it enough to restore investor confidence?
What Should Investors Do?: First and foremost, stop blaming yourself for holding IndusInd Bank in your portfolio. Consider the mutual fund managers who are equipped with experts, access to data, and regular interactions with the management. Despite this, they’ve made significant investments—over Rs 6,500 Crore—in IndusInd. Even the most seasoned professionals can get it wrong, and these stocks find their way into portfolios due to their inclusion in the Nifty 50 and Nifty Bank indices. When an index stock faces a crisis, it’s hard to manage.
So, if you hold IndusInd Bank, don’t panic. Ignore the negative news and continue holding your position. Wait for the report from the committee set up by IndusInd’s management, and monitor the actions of mutual fund managers regarding the stock. In a bearish market, stocks beaten down by bad news can often experience sharp reversals.
Should You Average Down?: If you’re an existing investor, don’t average down. Just hold your position. Averaging in the middle of a crisis often proves to be a poor strategy. Once the storm clears, you can consider fresh buying. In news-driven events, technical analysis becomes less relevant. Stop-loss and target prices are just numbers in such a scenario. If the stock jumps unexpectedly, celebrate the recovery, as these erratic jumps can often erase the pain of earlier losses. Sometimes, it’s better to take the occasional “pinch” than to act in haste.
Should Fresh Investors Buy Now? For new investors, this could be a good opportunity. Start by buying in small quantities, no more than 5% of your portfolio. Be prepared to take a hit of 5% on your overall portfolio. IndusInd is a beaten-down stock, and its recovery could be rapid once the dust settles.
The Lesson: Anything can happen in the stock market. Unexpected events, like a tweet from Trump, or hidden skeletons in the cupboards of blue-chip companies, can shake things up. While diversification and hedging help reduce the impact of shocks, they can’t eliminate risk entirely. Stop-loss orders are useful, but only if the system permits them. Equip yourself with a strong strategy and enjoy the unpredictable tides of the stock market.
