Bandhan Bank falls 11% in two days on profit-booking

Shares of Bandhan Bank slipped 5 per cent to Rs 556 on Thursday, falling 11 per cent in the past two trading days on profit-booking after GRUH Finance merged into private sector.

In the past two weeks, Bandhan Bank has outperformed the market by surging 33 per cent on run-up to inclusion in the MSCI Standard Index, effective October 15, 2019. The stock hit a 52-week high of Rs 638 on Tuesday. In comparison, the S&P BSE Sensex was up 0.52 per cent during the same period.

As per Macquarie Research, Bandhan will have a 0.014 per cent weightage in the index and will result in flow (expected buying) of approx 30.91 million shares—roughly equivalent to 38 days’ average volume. There will also be some offsetting outflow as GRUH Finance (which has now been merged into Bandhan Bank—effective record date of October 17, 2019) will be removed from the MSCI Small Cap Index.

“There is absolutely no change in the fundamentals of the business model and we expect selling in the name post credit of Bandhan Bank shares to erstwhile GRUH shareholders on October 17, 2019 (swap ratio of 0.568 shares of Bandhan for every 1 share of GRUH),” the brokerage firm said in a report dated October 11, 2019.

Analysts at the brokerage firm maintain a high-conviction UNDERPERFORM rating on Bandhan Bank with target price of Rs 425. "Apart from technical supply pressures on the stock from mandatory requirement of promoter stake sale from 61 per cent to 40 per cent required immediately, we also have fundamental concerns on over-leverage in core markets of eastern India, inability to meaningfully diversify away from microfinance and concentration risk," it added.

At 02:14 pm, Bandhan Bank was trading 2 per cent lower at Rs 570 on the BSE, as compared to a per cent rise in the S&P BSE Sensex. A combined 1.4 million shares changed hands on the counter on the BSE and NSE till the time of writing of this report.