IDFC stock to rally, those of other applicants might see correction

Central bank on Wednesday granted fresh banking licences to two entities from list of 25 applicants

The Reserve Bank of India (RBI)’s move on Wednesday to grant bank licences to two applicants — IDFC and Bandhan Financial Services — might spark a rally in the IDFC stock, but the stocks of other applicants such as L&T Finance and LIC Housing, perceived to be front-runners by the market, might correct, experts said.

In recent weeks, all the applicants had been in the spotlight, as investors had built positions in these counters, anticipating positive outcomes.

The IDFC, Srei Infrastructure and LIC Housing Finance stocks had risen sharply in the past month. Shares of JM Financial and Magma Fincorp saw a sharp rise on Wednesday, ahead of RBI’s announcement.

“IDFC is likely to rally due to the euphoria, while L&T Finance and some others, who had seen a run-up in anticipation they would get licences might see some correction,” said Sudip Bandyopadhyay, managing director, Destimoney Securities.

On Wednesday, IDFC shares closed at Rs 127.85 on BSE, up 3.86 per cent. The stock has gained 36 per cent in the past month. “IDFC has run up quite a bit in the past few months, in anticipation of a new banking licence. Since the news is on expected lines, the stock might see some upside, but not a very sharp one,” said Deven Choksey, managing director, Choksey Securities.

Experts said applicants that didn’t secure licences might not be hit badly. “The solace for other companies will be RBI has said now, licences will be available on-tap. So, there will be not much negativity, as hopes will still be alive,” said Bandyopadhyay.

Analysts said long-term investors would consider accumulating IDFC shares on hopes of a re-rating. “IDFC could be re-rated. The price-to-book value is also expected to rise to two times from about 1.3 times,” said Choksey.