Two least-tracked banks quietly top the charts, but analysts wary

Mumbai: While the banking pack has been one of the worst impacted sector on a year-to-date basis, two barely-tracked stocks have turned out to be the winners in the race, as they logged double-digit gains for the year to date. But analysts are wary of their prospects going forward.

The two lenders are Lakshmi Vilas Bank and IDBI Bank: the first has risen 37 per cent and the second 19 per cent year to date and both have more than doubled their share prices from March lows. In contrast, BSE Bankex has dropped nearly 33 per cent so far this year even after rising 35 per cent from its March lows.

Lakshmi Vilas Bank has just one rating – a strong buy; IDBI Bank has a strong sell on the publicly availably Reuters Eikon database.

Rusmik Oza, Head of Fundamental Research at Kotak Securities, said these stocks were beaten down a lot, and the rally looks ‘optically very strong’ in the light of the meltdown. Lakshmi Vilas Bank has eroded 65 per cent of its value in last one decade, and IDBI Bank 58 per cent.

“Lakshmi Vilas Bank does not have a good track record. Even if a new investor comes in, it will not change much. That alone is no reason to pick this stock,” Oza said.

He said the IDBI Bank stock often gets a boost on talks of divestment or merger, but he does not see any compelling reason to take a call on the stock. “In banks, quality of lending is of paramount importance. So, we would prefer to play the banking theme through other options and steer clear of these stocks,” he said.

For capital-starved Lakshmi Vilas Bank, most of the gains came in over the last one month, when it jumped 67 per cent on hopes of fund infusion. In June, the bank said it had received a preliminary, non-binding letter of intent from AION Capital-backed Clix Capital Services and Clix Finance India for a proposed capital-raising transaction, and that the parties will be carrying out due diligence.

In the past few years, Lakshmi Vilas Bank has faced liquidity and asset quality issues and has been looking for prospective investors and buyers. It had come up with a merger plan with Indiabulls Housing Finance last year, but did not get a go-ahead from the Reserve Bank of India.

The IDBI Bank stock trades at a 52-week high of Rs 50.60. The gains mostly came after its March quarter earnings, when the lender reported its first set of profit in three years. The stock has risen 59 per cent in last one month.

On June 10, CEO Rakesh Sharma told ET that he did not expect Covid-related asset quality pressures to derail the bank’s turnaround plans. “IDBI Bank came up with robust earnings, which has been the case with some PSU lenders. However, the rally is mindboggling. At these levels, I would be cautious,” said independent analyst Ambareesh Baliga.

“In the case of Lakshmi Vilas Bank, the hope of capital infusion is fuelling the rally. The stock had suffered a lot, as there were fears that few such banks may go the YES Bank way. However, I would clearly stay away from the stock for now,” he said.

Ajay Bodke, CEO-PMS Prabhudas Lilladher, said he won’t like these stocks as part of key portfolios. “These can only be tactical buys, based on change of guard. The bad loan problems are severe and may not go away quickly. These stocks cannot be part of a core portfolio,” he said.

“Till such time that the balance sheet gets cleaned up, one should be vigilant,” Bodke added.

IDBI Bank’s market capitalization is now more than that of Punjab National Bank, IndusInd Bank, YES Bank and Bank of Baroda. It is the seventh-most valued bank in India currently, just after Bandhan Bank.

The recent boost has also been attributed to the plans to sell its 48 per cent stake in its insurance arm IDBI Federal Life Insurance for Rs 595 crore.

Also what is working in the stock’s favour are the divestment hopes. In February, Finance Minister Nirmala Sitharaman said the government would sell its entire stake in IDBI Bank to private players. As of March 31, the government owned 47.11 per cent stake in the lender, while state-run Life Insurance Corporation of India (LIC) held 51 per cent.

Abhimanyu Sofat, Head of Research at IIFL Securities, isn’t optimistic. “In the case of IDBI Bank, this time they have made a profit after a long time. But we prefer large private banks or an SBI, which have better risk-reward. One needs to see if the profit growth sustains. The stock is very expensive at current levels,” he said.

“These were heavily beaten down stocks, as there was fear of their failure. The YES Bank saga accentuated these fears,” Sofat said, adding that apart from stock-specific news flow, early opening of the rural economy and a surge in liquidity help.

Sofat likened the rally in these stocks to the euphoria seen in penny stocks. “We are seeing a frenzy in penny stocks, with Ruchi Soyas of the world delivering exorbitant gains. The typical hyper-active participation of retail investors is also leading to the surge. Investors should exercise caution and not get carried away,” he added.

Lakshmi Vilas Bank and IDBI Bank were the only two stocks to log double-digit gains for the year to date. Shares of YES Bank have jumped 361 per cent from March lows, IndusInd Bank 102 per cent and Bandhan Bank 110 per cent, but they are still down on a year-to-date basis.