Bandhan Bank surges 15% ahead of inclusion in MSCI Global Standard Index

One estimate shows the MSCI inclusion could lead to ETF buying of nearly Rs 1,280 crore in Bandhan Bank.

The Bandhan Bank stock ended with gains of 15 per cent on Friday, ahead of its inclusion in the MSCI’s Global Standard Index. The stock will be added to the index with effect from October 16. The inclusion is on effect of the merger between Bandhan Bank and Gruh Finance. 

Shares of Gruh Finance also rose 11 per cent, as arbitrage traders took positions in both the counters. 

Under the proposed merger, 568 equity shares of Bandhan Bank will be issued for every 1,000 equity shares of Gruh. Shares of Bandhan Bank ended at Rs 581, while those of Gruh Finance closed at Rs 302. The trading volume in Bandhan Bank is 40x its 20-day average, according to Bloomberg data. 

One estimate shows the MSCI inclusion could lead to ETF buying of nearly $180 million (Rs 1,280 crore) in Bandhan Bank. 

 

The merger with Gruh Finance, coupled with the MSCI inclusion, has proved a double-boost for the stock.

Promoter holding in the bank is expected to come down from 82.3 per cent at present to 61 per cent following the merger. To comply with RBI norms, promoter Bandhan Financial has to cut its stake to 41 per cent.

Some believe that after the MSCI-related buying ends, the stock could see some pressure, given the the impending promoter dilution. 

“Promoter holding will remain a key overhang, even as the company would have reduced promoter shareholding from 82.3 per cent to 61 per cent upon merging with Gruh Finance,” said a note by ULJK Securities.

In terms of price-to-book value, Bandhan Bank is among the most expensive banking stock. It is trading at over 4x its estimated book value for FY20.

However, most analysts are bullish on the stock, given its strong loan book growth, healthy liability franchise, and lower operating expenditure.

Shares of Bandhan Bank had dropped nearly 30 per cent from their 2019 highs amid turmoil in the financial sector. However, following the latest gains, the stock has recouped most the losses.