Why is Bandhan Bank Ltd. falling/rising?

Recent Price Performance and Market Context

Bandhan Bank’s stock has outperformed the broader market and its sector peers in the short term. Over the past week, the stock surged by 10.80%, significantly outpacing the Sensex’s modest 0.53% gain. Similarly, the one-month and year-to-date returns stand at +5.67% and +4.91% respectively, while the Sensex has declined by over 3% in both periods. This relative strength suggests renewed investor interest and confidence in the bank’s near-term prospects.

On 28-Jan, the stock reached an intraday high of ₹154.35, marking a 3.63% increase during the session. It also outperformed its sector by 1.34%, indicating a selective preference among investors for Bandhan Bank within the banking space. The share price currently trades above its 5-day, 20-day, and 50-day moving averages, signalling positive momentum in the short to medium term, although it remains below the longer-term 100-day and 200-day averages.

Fundamental Strengths Supporting the Rise

Several fundamental factors underpin the recent rise in Bandhan Bank’s share price. The bank maintains a robust Net Interest Margin (NIM) of 7.66%, reflecting efficient core lending operations and profitability. Additionally, its Capital Adequacy Ratio (CAR) stands at a healthy 16.84%, indicating strong buffers against credit and operational risks. This capital strength reassures investors about the bank’s resilience in a challenging economic environment.

From a valuation perspective, Bandhan Bank is trading at a Price to Book Value of 1, which is considered fair relative to its peers and historical averages. Its Return on Assets (ROA) of 0.5% further supports the notion of reasonable profitability. These factors combined suggest that the stock is attractively valued for investors seeking exposure to private sector banks with solid fundamentals.

Challenges Tempering Long-Term Outlook

Despite the positive price action, Bandhan Bank faces significant headwinds that temper enthusiasm. The company’s net profit has declined sharply, with an annualised contraction rate of -17.40%, signalling poor long-term growth prospects. Over the past year, profits have fallen by a steep 59.4%, even as the stock managed a modest 1.09% return.

Recent quarterly results have been disappointing, with the latest Profit After Tax (PAT) at ₹205.59 crores down 33.0% compared to the previous four-quarter average. The Profit Before Tax excluding other income (PBT less OI) also declined by 10.7%, registering a loss of ₹400.63 crores. Furthermore, cash and cash equivalents have dropped to their lowest half-yearly level of ₹5,330.47 crores, raising concerns about liquidity and operational flexibility.

Investor participation has also waned, as delivery volumes on 27-Jan fell by over 30% against the five-day average, suggesting cautious trading activity despite the price rise. This reduced participation may reflect uncertainty among shareholders about the bank’s near-term trajectory.

Promoter Sentiment and Its Impact

Adding to the cautious outlook is the reduction in promoter holdings. Promoters have decreased their stake by 0.55% over the previous quarter, now holding 39.74% of the company. This decline in promoter confidence may signal concerns about the bank’s future growth and profitability, potentially influencing investor sentiment negatively in the longer term.

Nevertheless, the current price rise suggests that investors are focusing on the bank’s strong capital position, fair valuation, and short-term momentum rather than its recent profit declines and promoter stake reduction. The stock’s liquidity remains adequate, supporting continued trading activity at reasonable volumes.

Conclusion

In summary, Bandhan Bank Ltd.’s share price rise on 28-Jan reflects a complex balance of factors. While the bank’s robust capital adequacy, attractive valuation, and short-term price momentum have encouraged buying interest, significant challenges remain in the form of declining profits, negative recent quarterly results, and reduced promoter confidence. Investors appear to be weighing these positives against the negatives, resulting in the stock’s current upward trajectory despite underlying concerns.

For market participants, this suggests a cautious but opportunistic stance towards Bandhan Bank, recognising its strengths while remaining mindful of the risks that have constrained its long-term growth.

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