Fw: Thematic Report (Closure of switch call from BoI to PNB with 14.3% returns)

 

 

Thematic Report [July 16, 2012]  Sharekhan www.sharekhan.com

Summary of Contents THEMATIC REPORT Closure of switch call from BoI to PNB with 14.3% returns Switch call generates 14.3% absolute returns within five weeks: We had initiated the switch call in a report dated 8 June 2012, whereby we had recommended a switch from Bank of India (BoI; Rs353) to Punjab National Bank (PNB; Rs782). Since then, BoI has declined by 5.3% whereas PNB has appreciated by 9%, thereby generating an absolute return of 14.3% within a period of five weeks. The 14.3% return also compares favourably with the return of 2.7% given by the benchmark index (Sensex) and 5.5% given by the BSE Bankex over the same period.   Rationale for closing the switch call Valuation anomaly corrected; PNB at premium to BoI again: After the appreciation in PNB and the decline in BoI, the valuation anomaly has corrected substantially and PNB has moved back to commanding a premium over BoI now.   Quarterly results and RBI's policy could affect valuation: In the near term the Q1FY2013 numbers and the RBI's policy review will influence the stock prices. A firm inflation trend and a weak monsoon could deter the RBI from easing the rates which could negatively affect the bank stocks. The quarterly results may optically look good in terms of earnings growth (a 54% year-on-year growth for BoI and an 18% Y-o-Y growth for PNB) but the same may be affected by headwinds such as a rise in slippages/restructured loans, and a decline in the margins and business volumes going ahead.   Close the switch call: The strong outperformance of PNB over BoI, has given a handsome return of 14.3% in barely five weeks. However, in view of the fundamentals, we maintain our Buy rating on PNB and Hold rating on BoI.   Click here to read report: Thematic Report   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.