QIP, Jhunjhunwala stake buy: Canara Bank can rise 31% from here, charts say

Canara Bank has been in the news recently in the backdrop of the bank raising Rs 2,500 crore via a qualified institutional placement (QIP), with a floor price at Rs 155.58 per equity share. That apart, Rakesh Jhunjhunwala has picked a 1.59 per cent stake in the state-owned lender, latest shareholding pattern data showed.

"The meeting of the sub-committee of the board - Capital Planning Process of the Board of Directors of the bank approved the closure of the issue period for QIP today (August 23, 2021)," Canara Bank had said in a regulatory filing earlier this week.

Analysts say the capital raise will mainly shore up Canara Bank's capital ratios, which remain subpar compared to peers after the merger with Syndicate Bank.

The fresh QIP will improve CET-1 by 48bps to 9.3% (8.9% in Q1FY22), Tier-1 to 10.8% (10.3% in Q1FY22) and overall CAR to 13.8% (13.4% in Q1FY22), wrote analysts at Emkay Global in a recent report. However, the CET-1 ratio, according to them, still remains relatively lower versus the large peers (9.8% - 11.6%). The bank, they believe, needs to further raise capital either from the market or via a stake sale in subsidiaries (Life Insurance/CanFin homes).

"Merger-related concerns are largely behind and the bank should report a gradual improvement in its RoA/RoE to 0.4-0.5%/10-11% by FY23E-24E, led by better growth. Retain Buy with a target price of Rs 185, valuing the core bank at 0.6x Sep’23E adjusted book value (ABV) and subsidiaries at Rs 22 per share," wrote Anand Dama, Neelam Bhatia and Mayank Agarwal of Emkay Global in an August 25 note.

Technical view

On the technical front, too, the stock looks good from a medium-term perspective.
 
Canara Bank (CANBK)

Likely target: Rs 175 and Rs 200

Upside potential: 15% to 31%

The breakout of the “Double Bottom” on the monthly chart signals a medium-term bullish outlook for Canara Bank stock. The overall trend suggests that the stock is heading towards Rs 200 levels, which appears to be the next significant resistance mark. The immediate rally indicates a move in the direction of Rs 175 levels. The support comes at Rs 141 levels, which is its 200-days moving average (DMA), followed by Rs 125, as per the daily and weekly charts. Going forward, as long as the stock holds the major support of Rs 125, the long-term outlook remains strong and the stock can see buying on any weaknesses.

On the other technical parameters, such as the Moving Average Convergence Divergence (MACD), Canara Bank stock looks to be headed towards the zero line with a positive crossover, reflecting an upward momentum for the counter. Similarly, Relative Strength Index (RSI) shows a positive bias. Any move above 52 values may see aggressive buying come in, according to the monthly chart. CLICK HERE FOR THE CHART