HDFC Bank and ICICI Bank scrips lose shine

NetScribes/Janaki Krishnan

The ICICI Bank and the HDFC Bank scrips are having a bad time at the bourses. On October 5,2000 the ICICI Bank stock dipped by nearly 19 points over its previous close. It closed at Rs 121.05 after opening at Rs 140. The HDFC Bank scrip, on the other hand, held steady during the day. However, it dipped slightly by around Rs 1.15 to close at Rs 232.50, while the day's open was Rs 236.15. This scrip has been going down steadily for some time with selling happening in small lots.

Vivek Ganguly, an analyst with KR Choksey, said that a reason for the ICICI Bank scrip going down was the negative perception in the market with regard to its reverse merger with its parent institution, ICICI. "For the bank, it spells bad news as this means that the huge non-performing assets (NPA) base of the institution (more than 8 per cent of its advances) would be added to its portfolio," he said.

It will be the institution which will benefit from the reverse merger as it will have access to cheap funds. This will substantially lower its cost of borrowing - both short term and long term.

That the market is not happy with the proposed merger move is evident from the fact that ICICI Bank's shares are being sold continuously. A small but significant portion of the offloading can also be attributed to a technical correction, i.e., brokers unwinding their long positions. "Technically, the stock is very weak," said Hanuman Bhatia, dealer with Parag Parikh Securities.

With an equity base of Rs 2 billion, the current market cap of the bank is around Rs 27.62 billion.

HDFC Bank was buoyant even during the bearish phase of April-June this year. This was primarily due to the strong institutional interest in the scrip. However, the scrip has been slowly losing its lustre as the market is discounting the edge the bank had over the others with its initiatives in information technology and good management practices.

For brokers to become interested in the bank's stock again, the bank has to offer them some good news. Other banks, both in private and public sectors, will catch up in terms of better management and IT systems. The bank has an equity base of Rs 1.96 billion.

While both the banks are seen as being on par in a corporate sense, the market perception is reflected in the price differentials between the two scrips, which now stands at Rs 114. The fact that the two scrips started out on the same level can be ascertained by their 52-week highs, which was Rs 285 for ICICI Bank and Rs 295 for HDFC Bank.

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