IndusInd Bank: 3 questions after Sumant Kathpalia's exit; should you sell this stock?

IndusInd Bank investors face three key questions following the exit of MD & CEO Sumant Kathpalia with immediate effect, in the aftermath of the accounting discrepancies seen in the bank's derivatives portfolio under his leadership. Investors wonder whether there will be an RBI-nominated director. They are unsure for how long would the entire transition last and also whether there be further transitions. This puts IndusInd Bank in a position of vulnerability, Elara Securities said.

Following the exits of the MD and CEO and the Deputy CEO Arun Khurana earlier, the IndusInd Bank board has approached the Reserve Bank of India (RBI) seeking an approval to form a “committee of executives” to carry out the responsibilities of the CEO in the interim. 

This, Elara Securities said, is a temporary measure to ensure operational continuity, adding that the uncertainty during the transition period persists. 

To recall, IndusInd Bank recently witnessed a series of negative events including the resignation of CFO Gobind Jain and attrition at senior levels. Kathpalia himself received a shorter tenure extension for a second time, suggesting a lack of RBI trust on his leadership. Besides, the bank identified accounting discrepancies in its derivatives accounting practices, following which Khurana resigned. It was now Kathpalia's turn. 

"This potentially raises concerns on several aspects but more importantly two critical facets: (1) uncertainty in leadership, further contributing to an already ambiguous environment regarding the bank’s strategic direction, and 2) potential financial implications given the hit to customer confidence," said Elara Securities.  

The likelihood of further transitions in key managerial positions in the coming months adds to the instability. 

"We believe this could elongate the recovery trajectory. Thus, we maintain Sell on the stock with target at Rs 830 and remain watchful of further developments," the brokerage said.

IndusInd Bank shares have seen over 20 per cent correction in the past six months, following which the stock currently trades at 0.8x FY27 price-to-book value. 

"We shall monitor related changes before revising estimates basis this development, as concerns are material," Elara said.

IndusInd Bank: Technical outlook
Vishnu Kant Upadhyay of  Master Capital Services said leadership transitions at the top, especially amid significant financial setbacks, tend to increase uncertainty regarding strategic continuity and governance. 

These financial & leadership headwinds have, however, already been discounted in stock, he said.  Upadhyay said no major sell off is likely to take place in long term. 

"But still, long-term IIB investors may watch for clarity on succession planning and stabilisation efforts. Technically, if the stock breaches key support zones around Rs 770, it could invite further downside toward 712 and then 640 levels. On the higher side, Rs 920-940 will continue to act as an immediate resistance," Upadhyay said. 

Kiran Jani, Head of Technical Research at Jainam Broking said: "Investors should stay away from the stock at current levels. Those holding should maintain a strict stop loss of Rs 800."