Mid-cap banks gain on Rajan's comments

Rajan's statement in Washington saw sharp uptake in stocks like Lakshmi Vilas Bank, Karnataka Bank, South Indian Bank, Syndicate Bank among others

Scrips of mid-cap banks such as Lakshmi Vilas Bank, Karnataka Bank, South Indian Bank and Syndicate Bank rallied on Monday on the back of Reserve Bank of India Governor Raghuram Rajan’s comments on foreign banks’ entry into India, which the markets interpreted as favourable for acquisition of small-sized Indian banks.

“That is going to be a big, big opening because one could even contemplate taking over Indian banks, small Indian banks and so on,” PTI quoted Rajan as saying in Washington. Lakshmi Vilas and Karnataka Bank were among the best-performing stock on the BSE, having risen 19.9 per cent and 16.9 per cent, respectively.

Other mid-cap stocks that saw a sharp rise were South Indian Bank, which rose 9.8 per cent, while Syndicate Bank, Federal Bank and Development Credit Bank were up about six per cent each.

“The news has only affected mid-cap stocks as they will be the first targets of takeover by foreign banks, if the proposal for that goes through,” said Daljeet Singh Kohli, head of research at IndiaNivesh Securities.

On Monday, the BSE Bankex was up 0.5 per cent while the BSE Sensex was up 0.4 per cent to 20,607.

“We are not expecting any follow-up rally in these stocks tomorrow, as fundamentally, there is no change in them. It is just a one-day impact of the words of the RBI governor and the rally is expected to fizzle out,” said Sonam H Udasi, head of research at IDBI Capital.

According to banking analysts, traders used the opportunity to buy into these stocks, which had been beaten down significantly. Karnataka Bank has declined by 16.7 per cent since April this year, while Syndicate Bank declined 29 per cent, and South Indian bank by 11.4 per cent. On the other hand, Lakshmi Vilas Bank dropped only four per cent during the same period.

There could be further upside in these stocks, analysts said, since the valuation of some of these was still attractive.