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Informist, Friday, Oct. 25, 2024

By Anjana Therese Antony

MUMBAI – Traders aggressively added short bets in the derivatives segment of IndusInd Bank after the lender posted weak earnings for Jul-Sept, which was also surprisingly lower than what the Street had expected. Premiums on deep out-of-the-money call options of the bank expiring next week tumbled and the October futures contract also closed sharply lower, mirroring the fall in the cash market.

Some broking firms downgraded their earnings estimates on the bank as well as the stock rating due to the weakness in key segments, lower-than-expected loan growth and lower net interest margin. All of these made investors offload the stock, which closed a whopping 18.6% lower at INR 1,041.60 on the National Stock Exchange on Friday and extending losses for the fifth consecutive week. Premiums on INR 1,160-1,720 call options of the bank declined 80-97% and those on INR 1,080-1,300 put options rose. The maximum open interest addition was at INR 1,200 call and INR 1,080 put contracts. 

Various broking firms were disappointed with the bank's quarterly outcome and said the result missed their estimates across parameters. "We are more disappointed on the weak revenue/PPOP (pre-provision operating profit) growth, which has been disproportionately impacted by weak growth in high-yielding MFI and vehicle segments," ICICI Securities said in its post-earnings report. However, the broking firm expects a healthy bounce-back in net interest margin and asset quality in 2025-26 (Apr-Mar). It also reduced the target price of the stock to INR 1,600 from INR 1,900 earlier, while maintaining a 'buy' rating. 

For the quarter ended September, the lender posted a sharp 39.5% on-year decline in net profit to INR 13.25 billion due to a sharp rise in provisions of 87% to INR 18.20 billion. The profit figure was significantly lower than the Street's expectation of INR 22.1 billion. The bank's advances were INR 3.57 trillion as of Sept. 30, up 13% from a year ago. The bank reported a growth of 18% in loans in the year ended March. The slowdown in growth in advances is mainly due to a 5% on-year decline in microfinance loan book to INR 327 billion as of Sept. 30.

The fall in shares of IndusInd Bank contributed to an over 0.1% fall in the benchmark Nifty 50 index which closed 0.9% lower at 24180.80 points, down for the fifth consecutive session. The index also closed lower for the fourth straight week, falling 7.6%, or nearly 2000 points, during this time period. The 24000 level remains a strong support for the 50-stock index and resistance is seen at 24300-24500 points.

Traders added more short positions in the options chain of the Nifty 50 and exited some long positions from the October futures contract expiring next week. Premiums on 24150-25000 call options, expiring next week, declined 33-53% and those on 24000-23000 put contracts increased 68-73%. The maximum open interest addition was at 24200-point call and 24000-point put options. 

Analysts said the index may not be able to cross the 24500 level next week as there are positive triggers in the domestic market that could prompt investors to buy in the near term. The equity market has been falling due to recurring selling by foreign investors, expensive valuations, and earnings downgrades following September quarter earnings of some large-cap and mid-cap companies. 

--Nifty 50 Oct closed at 24215.00, down 237.00 points; 34.20-point premium to spot index

--Nifty 50 Nov closed at 24355.00, down 238.90 points; 174.20-point premium to spot index

--Nifty 50 Dec closed at 24508.00, down 243.50 points; 327.20-point premium to spot index

Dixon Technologies India, IndusInd Bank, HDFC Bank, ICICI Bank, Reliance Industries, Axis Bank, State Bank of India, ITC, Bharat Electronics, IDFC FIRST Bank, Bajaj Finance, Adani Enterprises, Kotak Mahindra Bank, Tata Motors, Mahindra & Mahindra, Infosys, and Trent were the most actively traded contracts. End

Edited by Deepshikha Bhardwaj

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