ICICI-Videocon case, Axis CEO woes hit banks: What should jittery investors do?

NEW DELHI: The market dislikes uncertainty. Which is why jittery investors are dumping shares of ICICI Bank and Axis Bank on the recent flurry of negative news.

Shares of ICICI Bank have lost 28 per cent of their market value since January highs. Axis Bank too has lost 21 per cent during the same period.
In case of ICICI Bank, even as the bank's board has given a clean chit to MD and CEO Chanda Kochhar on alleged quid pro quo in advancing loans to Venugopal Dhoot-led Videocon, sources informed ET a likely CBI examination of Videocon chairman and Chanda Kochhar's husband Deepak Kochhar, which has dragged the ICICI counter further.


The RBI asking Axis board to reconsider CEO Shikha Sharma's fourth term amid the lender's performance and deteriorating asset quality, on the other hand, has made investors nervous on the third largest private lender. Axis Bank, has told stock exchnages that its board follows a standard process with regard to senior appointments, and forwards its recommendations to the regulator, to the extent required. This process is currently in progress, it told BSE.

On Monday, ICICI Bank settled 5.8 per cent lower at Rs 262.25. The scrip was the worst Sensex performer for the day. Axis Bank was the second-worst index performer with a 2.61 per cent fall. Is there a case for buy?

Marketmen tracking the developments believe that investors brave enough to face short-term news flows can enter the counters as valuations look attractive. Those who are invested in these stocks need not panic, they said.

"It's the case of a glass half full or half empty. These stocks have already corrected 20-25 per cent from their recent highs. If you can ignore the recent negative developments and wish to invest with a long-term horizon, ICICI Bank offers attractive opportunity at Rs 250 and Axis Bank at Rs 470. That said, in case you want to go for safer bets, consider IndusInd Bank or Kotak Mahindra Bank," said Sanjiv Bhasin, Executive Vice-President at IIFL.

G Chokkalingam, founder and MD, Equinomics Research & Advisory, said it makes sense for investors to hold on to the stocks. In the case of ICICI Bank, he believes that other than the recent stock correction, the value-unlocking opportunities -- the valuations of subsidiaries -- make the stock attractive.

What makes a stock move is its fundamentals, Chokkalingam said, adding that after all the asset woes and banking clean-up, the two banks may emerge as good long-term bets.

ICICI Bank in a statement noted that it was not the lead bank for the consortium that lent to Videocon. The bank sanctioned less than 10 per cent of the total consortium facility in April 2012. Chanda Kochhar was not the Chairperson of the Committee, it said. The majority of Credit Committee members are independent directors of the bank. Also, the chairman of the committee was a non-executive director till as late as June 2015, it said.

Videocon Group Chairman Venugopal Dhoot too has denied any dealings with Deepak Kochhar.

But Arvind Gupta, Trustee at Indian Investors Protection Council, said evidence shows strong links that Chanda Kochhar and her family are a huge beneficiary of this loan. "The government should order investigation and audit to check why the loan was given to a sinking company," Gupta told ANI.

"It is unfortunate that these iconic names have got entangled in this controversy. Of course, there is a lot of pressure on the RBI. The governor just a couple of weeks ago had said he had no power over public sector banks, but substantial power over private sector banks. It has done something in respect of Axis Bank. I guess it will be doing something on ICICI Bank," said Pradip P Shah, Chairman, IndAsia Fund Advisors.

When such a controversy comes up, it shakes confidence of both depositors, investors and lenders in the banking system, Shah pointed out.

"Banks will have to improve their self regulation, self governance, their board procedures and systems to bring back the confidence of investors. It will be a bold investor who would want to invest in this situation. There will be people who will say better be safe than sorry. They will be dumping the stock. People will say let us avoid this controversy as there are other opportunities in the market," Shah added.

ET reported that the The ICICI Bank-Videocon loan case may soon be expanded to other banks.

"Till the time the CBI does not come up with its findings and the final outcome, it will be always sort of a hanging story," sad Santosh Singh, BFSI and Head of Research, Haitong Securities.

"The CBI inquiry itself is a long-drawn process and creates uncertainty on the stock price. I would not say this story is going to die down so fast because of this reason only. Everyone has been saying the bank is good and valuations are dirt cheap actually," the analyst told ET Now.