Market shrugs off new bank licence euphoria

While the unlucky suitors to new bank licences appear to still grappling with the RBI decision to grant only two new licences, the market appears to have shaken off the euphoria, or the disappointment, over the decision.

While IDFC stock, one of the two successful bidders for the bank licence, has shed much of the gains made after getting the RBI nod for the licence, many of the losing bidders have bounced back from the lows of the day, reflecting the mood of the investors that losing bank licence in the first round is not a setback to their core operations.

IDFC shares, which had shot up to a high of Rs 139 after trading began this morning, have lost much of the gains and were trading at Rs 128.95, a gain of Rs 1.15. There was huge trading in the counter with the stock recording a volume of 3.72 crore shares in less than three hours of trading.

Stocks of some of the unsuccessful bidders, which came under selling pressure in the morning, shook off the losers’ tag apparently as investors realised that the core business of these companies was still strong.

LIC Housing Finance , which slipped to a low of Rs 231 in the morning, bounced back to Rs 244.65, limiting the loss to Rs 3.10 with a trading volume of 76.37 lakh shares.

Bajaj Finserve was another stock to recover smartly from the day’s low of Rs 749.95 to trade at Rs 778, a loss of Rs 10.40. Aditya Birla Nuvo had shed Rs 18.80 to trade at Rs 1,081, Reliance Capital was trading at Rs 341.40, a loss of Rs 14.95 and Religare Enterprises was trading at Rs 300.90, a loss of Rs 8.65. This stock too had bounced back from a low of Rs 250.

L&T Finance Holdings was down by Rs 7.60 to Rs 69.70 and this counter also witnessed trading frenzy with a trading volume of 2.7 crore shares.

Commenting on IDFC, Adarsh Parasrampuria, Research Analyst-Institutional Equities, Prabhudas Lilladher Pvt Ltd, Mumbai, said that an analysis of IDFC’s return ratios "post 5‐6 yrs of transition pain'' showed that ROEs at best might return to 11‐14 per cent levels factoring in some success on CASA mobilisation. But its valuation at 1.1x Mar‐15 book was 'undemanding’ given the bank licence but delivering on CASA/PSL in a "cost-efficient manner'' in view of the transition period risk would be a challenge.

Adarsh felt that while valuations would provide downside support, to benchmark IDFC to large new generation private banks was "not justified'' and gave an "accumulate'' rating to the stock.