Sharp Stock Decline Triggers Massive Mutual Fund Losses
Mutual fund investments in IndusInd Bank took a severe hit on March 11, as the stock plunged 20% in a single day following the bank’s disclosure of a 2.4% impact on its net worth due to changes in the valuation of derivative transactions.
The sharp drop resulted in a significant ₹6,000 crore erosion in the value of mutual fund holdings, raising concerns among investors about the bank’s financial health and governance.
Mutual Fund Exposure: Top Asset Managers Affected
As of February 2025, 35 mutual funds collectively held over 20.88 crore shares of IndusInd Bank. The total value of these holdings was estimated at ₹20,670 crore. However, after the March 11 stock rout, the collective value has fallen to approximately ₹14,600 crore, marking a substantial decline in portfolio worth.
Major Mutual Funds Impacted
- ICICI Prudential Mutual Fund: ₹3,779 crore
- HDFC Mutual Fund: ₹3,564 crore
- SBI Mutual Fund: ₹3,048 crore
- UTI Mutual Fund: ₹2,447 crore
- Nippon India Mutual Fund: ₹1,876 crore
- Bandhan Mutual Fund: ₹1,125 crore
- Franklin Templeton Mutual Fund: ₹740 crore
The worst-hit asset managers include ICICI Prudential MF, HDFC MF, and SBI MF, which together account for a majority of the mutual fund stake in IndusInd Bank.
Between April 2024 and January 2025, mutual funds poured ₹10,200 crore into IndusInd Bank. However, as market sentiment weakened, February 2025 witnessed an outflow of ₹1,600 crore, signaling early investor apprehensions.
Why Did IndusInd Bank’s Stock Crash?
The 20% plunge in IndusInd Bank’s share price follows the lender’s disclosure of a valuation adjustment in its derivative transactions, which impacted its net worth by 2.4%.
The financial setback could lead to an estimated ₹1,500 crore reduction in net profit for Q4 FY25, according to market analysts.
Other factors contributing to the stock correction include:
- Foreign Institutional Investor (FII) Sell-Off: Persistent selling pressure from overseas investors, who are increasingly cautious about Indian financial stocks amid global economic volatility.
- Equity Market Decline: Broader stock market weakness has further exacerbated selling pressure, affecting not just IndusInd Bank but the entire banking and financial sector.
- Investor Confidence Erosion: Analysts believe the bigger concern is credibility rather than the immediate financial impact, as the bank’s handling of derivative transactions has raised governance concerns.
Market Response and Future Outlook
In response to the crisis, IndusInd Bank has engaged an independent external agency to review and validate internal findings related to the derivative valuation changes.
Market experts suggest that while the immediate financial impact is limited, investor sentiment may take time to recover.
Key areas that could influence IndusInd Bank’s recovery include:
- Strengthening Asset Quality: Improvements in the microfinance and retail loan portfolio could help stabilize investor confidence.
- Deposit Growth and Liquidity Management: Maintaining healthy deposit inflows will be crucial for long-term sustainability.
- Board’s Response and Regulatory Oversight: Analysts emphasize the need for transparent communication from the bank’s management to rebuild trust among stakeholders.
Despite the sharp correction, some market participants believe that the long-term fundamentals of IndusInd Bank remain intact. However, investors will be closely monitoring further developments, including the bank’s Q4 FY25 financial results, before making any fresh investment decisions.
